Institutional Investors' Effect on Home Price Appreciation

Even though they stated in a news release two weeks ago that institutional investment was waning, RealtyTrac has released a report on its impact on the housing market.  Institutional investors are defined as those who have purchased ten or more residential properties in a calendar year and in January they accounted for 5.2 percent of home purchases, down from 8.2 percent one year earlier. In all of 2013 institutional investors purchased 354,000 properties or 7.40 percent and over the last three years their purchases have totaled 850,000 units. The January number was a 22 month low.

In a select set of markets, purchases made by institutional investors represent more than 20 percent of all residential sales over the past three years and they remain a significant force in a number of areas, accounting, for a quarter of the market for example in Jacksonville, Florida and Atlanta.  RealtyTrac's new report contends that in areas where institutional investors played a significant role there was also a significant impact on home prices.  The same, however was not true of rents where the effect was slight but in the opposite direction.   

RealtyTrac looked at 1,264 counties nationwide with sufficient data available to evaluate institutional investor purchases or lack thereof and constructed the heat map below showing where these investors have been most active.  Hover over any county to see the percent of residential sales going to institutional investors over the past three years, along with home price appreciation and the change in fair market rents for a three bedroom home during the same time period.

The company says that the average home price appreciation between December 2011 and December 2013 in all counties studied was 14 percent and the change in fair market rents was 7 percent.  However, in the 14 counties where institutional investors made 20 percent or more of the home purchases during that period, prices appreciated an average of 31 percent and while rents increased by only 6 percent.  These counties contain 1 percent of the U.S. population.

In an additional 88 counties accounting for 12 percent of the population, institutional investors made-up 10 percent or more of purchases.  In those counties the average home price increased by 23 percent and rents were up by 5 percent.

RealtyTrac says that the data indicates that institutional investors have helped accelerate home price appreciation in the markets they have concentrated - "or possibly they have been very good at picking the right markets."