Home Investors to Buy Fewer Rentals as Prices Increase

Bloomberg- Jun 4, 2013

Almost half of U.S. real estate investors expect to buy fewer rental houses in the next 12 months as rising prices make it harder to profit, according to a survey by polling firm ORC International.

About 48 percent of investors surveyed plan to reduce home purchases over the next year, up from 30 percent in an August poll, according to the Princeton, New Jersey-based market-research firm. Only 20 percent expect to buy more homes, down from 39 percent in August.

“There’s a perception that the best time to buy is gone,” Chris Clothier, a partner in Memphis Invest and Premier Property Management Group, family-owned real estate companies that sponsored the survey, said in a telephone interview. “There are fewer homes to purchase. They have competition from larger buying groups. You’ve just got fewer investors that are able to take advantage of this market.”

Private-equity funds, real estate investment trusts and individual investors have been buying houses in a hunt for cash flow from rents and future price appreciation, with values still 28 percent below their 2006 peak. Investors were the buyers in 19 percent of U.S. home sales tracked by the National Association of Realtors in March and April, compared with 20 percent in April 2012, the group reported last month.

House prices rose 10.9 percent in the 12 months through March from a year earlier, according the S&P/Case-Shiller index of property values in 20 cities, as demand outstripped supply amid rising consumer confidence and attempts by buyers to lock in low mortgage rates. The gain was the biggest in seven years.

CoreLogic Index

A separate index compiled by CoreLogic Inc. yesterday showed that home prices in April jumped 12.1 percent from a year earlier, the most since February 2006.

While small investors had long dominated ownership of single-family rental homes, large buyers such as Blackstone Group LP and Tom Barrack’s Colony Capital LLC have created a new real estate asset class by aggregating thousands of properties. Blackstone has spent $4.5 billion to buy 26,000 houses through its Invitation Homes division. Barrack’s Colony American Homes Inc. spent $1.8 billion on more than 12,000 houses as of May 17, according to a filing last month.

Rising prices and competition have already spurred investors such as Carrington Holding Co. to stop making purchases. Returns aren’t high enough to continue to invest, Carrington Chief Executive Officer Bruce Rose said in an interview last month.

Renters occupy about 14 million single-family homes with a total value of $2.8 trillion, according to an April report by Goldman Sachs Group Inc. The U.S. homeownership rate fell to 65 percent in the first quarter, the lowest since 1995 and down from a peak of 69 percent in June 2004, as fewer people qualified to buy.

The ORC International survey results are based on replies from 226 people who owned multiple homes among 3,020 people surveyed by telephone land lines and mobile phones in May. The results are being announced today at a National Association of Real Estate Editors conference in Atlanta.