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Download this white paper to understand if and how COVID affected national migration patterns at the state, city and zip code levels; including how these patterns are affecting CRE stakeholders. Nearly a third of all homes sold in Texas last year went to a company or corporation that paid in cash, according to a report by the National Association of Realtors. Texas had the highest rate in the U.S. UU.
That's more than double the national average of 13 percent. Tarrant, Rockwall and Midland Counties Saw Some of the Biggest Investor Shares. Investors are being driven by Texas' growing population and attractiveness. But there are concerns about how this may affect first-time homebuyers who can't compete with cash-paying investors.
Nadia Evangelou, senior economist and director of forecasting for the National Association of Realtors, spoke to the Texas Standard about what this means for Texans. Listen to the previous interview or read the transcript below. Why are they heading to Texas? What's going on? According to our recent study, Texas is the state with the most home purchases by institutional buyers. As you mentioned, that's about 30 percent of statewide home purchases made by institutional buyers.
But the question is, why? And in a nutshell, it's because Texas meets all of the criteria on an investor's checklist. Our study shows that institutional buyers tend to buy homes in areas that have a rapidly growing household formation with larger populations of millennial and minority tenants. Institutional buyers also invest in popular areas that attract new residents. But we also see that, while both rents and home for sale prices are rising rapidly, housing remains affordable in areas where institutional buyers buy homes.
Texas offers all of this to investors. First, Texas is one of the top three states with the fastest growing population. In the last decade, we have seen the population increase by 16 percent. And while demographics in real estate vary by area, institutional investors focus on some specific areas of Texas.
Are there deep geographical areas that seem to be red hot right now for institutional investors? How does this affect competition from other potential buyers looking to enter this housing market? As for the main impact of institutional investors, what we see in our analysis is that they increase competition in the market. Institutional investors seem to be keeping a significant portion of homes that would otherwise be sold to first-time, low-income buyers. While many of those institutional buyers offer all the cash, as you mentioned, first-time homebuyers in these areas face even more competition. With these shoppers offering all the cash, first-time buyers can't compete.
But we have to think that they don't have the capital that other owners have. Therefore, it is very difficult to compete for first-time buyers. John Burns analyzed homes where property tax records go to a different address than the house itself, and Rick Palacios, the firm's research director, explained that it is not possible to tell from this data which component of these sales comes directly from institutional investors. For context, researchers point out that there are approximately 15 million single-family single-family rental homes independent of one unit.
And the main reason it has become so profitable is the pre-existing housing shortage created by local governments and certain homeowners looking to block new housing construction, leading to a shortage of nearly 4 million homes across the country. In Fort Walton, Florida, these sales increased by 65 percent; and in Flagstaff, Arizona and Punta Gorda, Florida, there were increases of 50 percent or more in investor sales. Given that renters are, on average, less affluent than prospective homeowners who qualify for the mortgage, institutional investors could be creating more housing for lower-wealth Americans. They also found that institutional investors are more likely to buy homes in neighborhoods “where fewer residents may qualify for a mortgage,” decreasing the likelihood that they will compete with regular homebuyers.
The Sun Belt also appealed to investors because there are fewer restrictions statewide than in a state like California, which heavily regulates landlord-tenant issues, said Jenny Schuetz, a housing policy expert at the Brookings Institution who has testified in congressional hearings on landlord-tenant ownership home investors. Institutional investors could change homes and price some potential homebuyers, and they could be noticeably worse homeowners. The main Marketplace anecdote in a story titled “Institutional Investors Still Compete for Homebuyers” is about a first-time buyer bidding on six homes and was outbid by cash offers. Raymond studies found that investor ownership in some Atlanta-area neighborhoods led to evictions, gentrification and displacement of long-time black residents, as investors sought higher-income tenants who could pay more rent to increase profits.
Low-priced homes are in the lower third of local prices, mid-priced homes are in the middle third, and high-priced homes are in the upper third of the local market. . .