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Institutional Investing: The Race for the Next Big Deal

Institutional Investor Share of Purchases for 20 Markets

Kathryn Dobbyn    |    Data Visualization, Housing Trends

On the heels of the news that Blackstone had issued the first ever single-family rental securitization, I decided to create this interactive chart to explore institutional investor buying activity.  Taking a subset of 20 metropolitan areas, I calculated the share of single-family purchases made by an institutional investor, split out by sale type: new construction, re-sale, real estate owned (REO) sale and short sale.  Here, institutional investors are defined as parties that have made 10 or more purchases in a calendar year in a metro area.  This was done by mining the buyer names and addresses recorded on property deeds in the CoreLogic public records dataset.  As many of these institutions use numerous addresses or variations in name when recording the purchase, entities were identified as unique using a combination of name and address.  It should also be noted that bulk purchasers, such as builders and relocation firms, were not considered to be institutional investors for this exercise.

Looking at the chart, institutional investors began heavily purchasing single-family homes in Phoenix in the beginning of 2012. There was a frenzy of purchase activity until the institutional purchase share peaked in July 2012 at 13.8 percent.  Interestingly, the short sale share lags the overall institutional share by roughly three months, peaking in October 2012 at 3.5 percent of all sales.  This move into short sale purchases occurred as REO inventories shrank rapidly along with a rise in home prices, causing investors to look for deals elsewhere.  Subsequently, institutional investors have slowed their overall Phoenix purchase activity as the rise in home values have started to price them out of the market and force them to look elsewhere.

This brings us to Charlotte, N.C. which began its housing recovery later than Phoenix.  Institutional investor activity didn’t really begin to pick up in Charlotte, N.C. until August 2012, just as investor purchases began to slow in Phoenix.  The rate of institutional activity continued to grow until April 2013, when the institutional investor share peaked at 12.5 percent.  Since then, the investor share has fallen dramatically to 6.7 percent in August 2013, again due to rising house prices.

A similar trend can be seen for Atlanta, which peaked at 6.5 percent in December 2013 and has been falling steadily ever since. The rise in investor share from 3.3 percent in July 2013 to 4.9 percent in August 2013, however, indicates that it is too early to tell if institutional buyers are fully pulling out of that market or if more activity remains to be seen.  Institutional investors are a new type of buyer in the post-crisis era, having provided a source of demand for distressed assets at a time when demand was sorely needed.  Nonetheless, as the interactive chart shows, even at the height of activity, institutional investment remained a relatively small share of the whole.  In today’s housing market, demand of any type is better than no demand at all.

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