Back in 2011-12, Phoenix Metro real estate market values had bottomed out, though no one was a hundred percent sure at the time if it was indeed the bottom. As Realtors working during this difficult and trying time, we were seeing many home buyers, especially first time home buyers, being outbid by buyers who were paying “all cash!” In some cases, we were witnessing at least ten simultaneous offers on a property. Obviously, the word was out – Phoenix was the place to buy!
Some of us were representing individual investors who were buying a number of properties to rent, or fix and flip but all the while, large institutional buyers were buying up homes by the thousands until they pulled back in August 2013. The purpose of their purchases was to create large rental pools. And boy did they. According to data from The Information Market, large institutional investors currently hold 12,629 homes in Maricopa County.
“Phoenix has become a pretty healthy and stable market, much of it the result of these investor’s purchases.”
In retrospect, the large scale investor buy was a really good thing. Neighborhoods that had become blighted from foreclosures and empty houses were starting to be occupied again. Many of these local buyers were fixing and flipping which improved the neighborhoods leading to values increasing and increasing! Phoenix has become a pretty healthy and stable market, much of it the result of these investors’ purchases.
Question: What if these large investors all of a sudden decide to sell? What could happen to values?
Only a small number of the homes purchased by these institutions have sold to date, but that could change. In a recent Bloomberg article, John Bertling, the Chief Executive Officer of Invitation Homes states that “Invitation Homes expects to cull about 5% of its properties annually.” More notably, the article states “about 25% of Invitation Homes’ renters who move out each year are leaving to become buyers,” according to the company. That’s similar to what other large firms are experiencing. Colony Starwood Homes has reported losing about 23% of departing tenants to homeownership and American Homes 4 Rent has said it’s figure is about 30%.
All three of these companies have significant holdings in Maricopa County. Using the 25% figure, 3,163 new home buyers are coming from this rental pool each year. Right now these homes that are vacated by renters-becoming-buyers are swiftly re-rented, and for more money, but when that stops or significantly slows, these companies may alter their strategy.
Right now there doesn’t seem to be any evidence that will start to happen soon. And if it did, the result of that sell-off could be a benefit to the first time home buyer, and wouldn’t that be awesome?!
– Mike Bodeen
*With Thanks to ARMLS Information Market