The economic environment shaped by the pandemic presented a golden opportunity for institutional homebuyers who were attracted by a blend of soaring rents, historic low-interest rates, readily accessible capital, and increasing home prices. According to John Burns Research & Consulting’s data, during the second quarter of 2022, institutional landlords, defined as corporations owning a minimum of 1,000 homes, accounted for 2.4% of all home purchases. However, with rapidly increasing interest rates, this trend sharply declined, and by the second quarter of 2023, institutional landlords accounted for only 0.4% of home purchases.
Interestingly, this reduction in purchases by institutional landlords doesn’t imply a massive sell-off from the sector. To comprehend which institutional homebuyers are selling and which are not, residential real estate data professionals at Parcl Labs were contacted.
The information provided by Parcl Labs shows no major inventory offloading by institutional homebuyers. Invitation Homes, a firm that owns over 84,000 homes, has only 156 homes up for sale. Similarly, Amherst, with an inventory of about 44,000 homes, has 128 homes for sale. This gives the impression of normal portfolio trimming rather than large scale selling.
Among 21 primary institutional homebuyers, just seven are selling off at least 2% of their portfolio right now. A previous analysis by Parcl Labs in December noted that only three institutional homebuyers had a minimum of 2% of their portfolio up for sale.
The situation does not indicate a vast sell-off but rather shows a continual cull and reallocation of portfolios, according to Lucy Ferguson, Vice President of Strategy at Parcl Labs. For instance, Divvy, with 5.2% of its portfolio for sale, is expected to have a higher turnover due to its business model – renting homes to financially tight individuals until they’re ready to buy.
However, VineBrook Homes Trust appears to be an institutional firm to closely monitor. The firm reported in November that it doesn’t possess sufficient liquid capital to meet its debt requirements. They are considering various measures including selling homes from its portfolio and paying down debt balances with the net sale proceeds. Based on this, it might be inferred that not all firms are shrugging off the impact of the changing real estate dynamics, and hence, the sector’s reaction to the current market scenario warrants further close observation.
