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Mortgage Rates and More Supply Drives “Bulk” Home Sales To Investors
The majority of new homes built in 2021 were bought and used by families and individuals as their primary residences. But an article in the Wall Street Journal indicated that increasing mortgage rates are reducing the number of available buyers. As a result, home builders are turning to deep-pocketed investors, who buy the newer homes, then turn around and rent them.
As of February 2022, 799,000 single-family homes were under construction in the United States, a 28% year-over-year hike. Yet according to the Mortgage Bankers Association, the total mortgage application volume during the first week of April 2022 dropped 41% from the same period the year before.
As a result, homebuilders are selling in bulk to rental investors. A recent report from John Burns Real Estate Consulting LLC and the National Rental Home Council indicated that one out of every four homes acquired by a renter-investor during Q4 2021 was a new home.
The trend is also encouraging builders to refocus their efforts on rental homes. One home developer is Keystone Homes in Scottsdale, AZ. About half of its 800-house construction pipeline will sell to investors. Rich Eneim Jr., president and principal, told the Wall Street Journal that the company lease the remainder directly to residents.
Rental investors tend to bid up land prices, especially in hot markets. Meanwhile, rental builders can pay more for land due to more capital availability. They can also build denser communities and might offer plans to increase rents every year.
One of Keystone Homes’ developments is The Havenly Fountain Hills, located about 30 miles from downtown Phoenix. An average 1,100-square-foot home rents for about $2,500 a month. Eneim told the Wall Street Journal that renting now and selling to an investor later reduces potential losses that might occur in a strict for-sale market. “When we do a for-sale community, we have to sell, no matter what the price is, no matter what the market is, if it’s good or bad. For rent, we can be patient,” he added.
- ◦Lease
- ◦Sale/Acquisition
- ◦Development
- ◦Financing
