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Wall Street Is on a Single-family Home Buying Spree. Here’s What it Means for Ordinary Homebuyers.

Wall Street Is on a Single-family Home Buying Spree. Here’s What it Means for Ordinary Homebuyers.
Tim Lucas - Home.com
VP of Content, Home.com

With reporting by Sam Wigness

As housing demand continues to outstrip supply, 2021 has been a record year for competition among homebuyers.

In April, nearly 75% of home offers faced competing bids, according to data from national real estate brokerage Redfin.

The bidding wars rate has since declined to less than 60% in September, but ordinary homebuyers — those looking for a primary residence — are facing a growing source of competition in Wall Street investment firms.

In the last 18 months investment firms including J.P.Morgan, BlackRock, and Allianz earmarked at least $30 billion for purchasing single-family homes with the intention of renting them out. Nearly a third of this spending was pledged in June 2021 alone, when home sales and prices reached record levels. According to John Burns Real Estate Consulting, these figures only include public data and the real total is much higher.

What's in this Article?

Why is Wall Street buying single-family homes?
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Are ordinary homebuyers competing with Wall Street?
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How are renters treated when Wall Street is the landlord?
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The biggest risk for first-time homebuyers
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Can first-time homebuyers avoid the single-family squeeze?
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Why is Wall Street buying single-family homes?

Institutional investors have been buying single-family homes since after the 2008 housing market crash. For several years during the Great Recession, their real estate investments stimulated the market and provided a price floor during a time of minimal demand.

Wall Street went all-out in some areas in the wake of the housing meltdown.

As Slate reports, Invitation Homes purchased 90% of for-sale homes in some Atlanta ZIP codes in the early 2010s.

It seems Wall Street’s appetite for this asset class – once deemed too unwieldy for institutional investors – has only grown since then.

In late 2020, after the pandemic created ideal homebuying conditions for investors and consumers alike, Wall Street accelerated this strategy and nearly doubled its purchase share from April 2020 to June 2021.

There’s no question why Wall Street has grown sweet on buying and renting out single-family homes. With fixed payments and interest rates, real estate investments are a hedge against inflation.

Plus, millennial interest in renting single-family homes is skyrocketing. “The strong demand for single family homes is led by maturing millennials seeking accommodation for their increasing space needs, with a preference for newly constructed homes and a propensity to rent,” said Karen Horstmann, head of acquisitions at Allianz Real Estate in a press release.

And while consumers are drooling over sub-3% interest rates, investment firms can borrow millions or billions of dollars at interest rates in the ballpark of 1.4%.

An interest rate in the 1’s enables huge investors to pay $5,000 to $20,000 more per home than an individual buyer could, at the same “real” cost including financing, says Slate.

Finally, rent is rising at nearly double the historic average, which all but guarantees a speedy and robust return on investment. The same report from Slate says rent payments from single-family homes purchased by Invitation Homes – the real-estate buying arm of Blackstone – are on pace to pay off the investment in eight years. Typically, a fairly priced rental will pay itself off in 20 years.

Elena Botella in Slate put it like this: “that Invitation Homes is getting deals twice as good as a typical homebuyer shows that it’s not just buying any homes: It’s buying the specific houses with the greatest potential to be wealth-building for the middle class.”

Are ordinary homebuyers competing with Wall Street?

The question of whether they are muscling out ordinary homebuyers and mom-and-pop investors is not so easily answered.

In August, CNN Business reported that “Institutional investors still own only about 2% of all single-family rentals in the United States, or roughly 300,000 homes.” For context, there are more than 80 million detached single-family homes in North America.

But institutional investments aren’t spread evenly across the continent or country. Investment firms tend to zero-in on specific regions, markets, and even neighborhoods that provide the greatest potential return on investment.

One example reported by The Wall Street Journal is the wholesale purchase of an entire subdivision in Conroe, Texas for $32 million by online property investor Fundrise LLC. The 124 homes were built by D.R. Horton for the purpose of renting instead of selling to individual homebuyers.

That same month, Marketplace told the story of a Fort Walton Beach, Fla. woman that was outbid by investment groups on six different homes.

According to CoreLogic, institutional investors are most active in South and Mountain West cities where population and home prices have grown during the pandemic, and “tenant rights laws are more favorable to landlords.”

Top 10 Markets by investor share (Q2 2021)

Market Investor share
Memphis, Tenn.31.6%
Atlanta-Sandy Springs-Roswell, Georg31.6%
Lubbock, Texas30.9%
McAllen-Edinburg-Mission, Texas30.1%
Brownsville-Harlingen, Texas29.1%
Phoenix-Mesa-Scottsdale, Ariz.29%
Beaumont-Port Aurther, Texas29%
Salt Lake City, Utah28.9%
Boise City, Idaho28.8%
El Paso, Texas28.8%

Wall Street isn’t just buying up any old house it can get its hands on. It’s using data and analytics to target the right homes with the greatest potential return on investment. Unfortunately, those are the same starter homes sought after by a wave of millennials aging into prime homebuying age.

Older, less expensive single-family starter homes in growing metro areas provide the greatest opportunity for profit. And when it comes to the bidding war, all-cash offers from investment firms often have the upper hand.

Institutional investors aren’t only edging out individual buyers, they’re taking market share away from small investors with 3-10 properties while mid-sized investors with 11-99 properties hold their ground.

In June 2020, small investors made up 55.5% of investor purchases and that share decreased to 47.5% in June 2021. In that same timeframe, large sized investors (over 100 properties) nearly doubled their market share from 11.1% to 20.2%.

This trend is likely to continue for as long as inflation and rising rents make buying single-family homes possible. In fact, we could see investors accelerate their single-family home purchasing in coming months. According to CoreLogic, investor purchase shares are highest in the winter months when owner-occupied buyers are less active.

In growing housing markets where the ROI is just right, Wall Street is probably going to make homebuying harder for individual buyers and mom-and-pop investors. But their growing presence is a symptom of rising real estate prices, and not the cause.

Home prices rose to record highs in 2021 due a longstanding housing shortage, low interest rates, and pent-up pandemic demand.

Those factors are pushing up rents, too, which has triggered the interest of Wall Street. But once they acquire the house, what happens to the renter therein?

How are renters treated when Wall Street is the landlord?

It may not seem a concern to homebuyers if renters in communities owned by Wall Street investors are treated unfairly.

But because big investors are buying up homes, there’s a greater chance would-be homebuyers will end up as renters in some areas. At that point, it becomes a big concern.

As with any landlord, renter experience is bound to be mixed. There will be good and bad actors in the relatively new world of Wall Street as landlords. But so far, the results appear to be less savory.

A CNN report tells a story of ever-increasing rents and fees, slow repairs, and few options – besides moving into a nearby home owned by the same company.

One of the larger single-family holding companies, Invitation Homes, evicted tenants during the pandemic despite a CDC ban, and is being investigated by the Federal Trade Commission on its business practices. Its tenants even formed a Facebook group of 1,800 members and a Twitter channel, which, as you could guess, is not very positive about the company.

Some tenants of Wall Street will have a great renting experience, but clearly, not everyone has.

The biggest risk for first-time homebuyers

The biggest drawback and risk for first-time homebuyers is not their renting experience if they choose not to buy or are forced into renting due to limited supply.

It’s lost future wealth.

As mentioned, some areas are seeing entire communities built from the ground up to turn into rentals. These communities are constructed by companies – such as D.R. Horton, Lennar and Pulte Homes – that would have sold to individual homebuyers. It makes sense for the builder: one negotiation, one sales price, instead of dealing with hundreds of buyers.

But as the idea of large corporations renting out single-family homes picks up steam, supply could be snatched up in a meaningful way in many areas of the U.S.

Homebuyers who missed out on the opportunity to own a home will also miss out on wealth creation that would have come with it. That wealth will end up in the hands of investors.

That’s concerning because homeowners are statistically more wealthy as their equity grows. A Federal Reserve survey found that U.S. homeowners had a net worth of $255,000 while renters’ net worth was just $6,300.

That could mean that millennial homeowners, in the future, could send their kids to college, have more money in retirement, and leave a nice inheritance for the next generation. Those who don’t buy a home may accomplish none of those things.

Related: Rent vs Buy Calculator

Can first-time homebuyers avoid the single-family squeeze?

So what do future homebuyers do from here in light of Wall Street’s interest in purchasing single-family homes?

Fortunately, corporations can’t buy every home out there. And they won’t touch some areas with high home values relative to rents. Large investors won’t corner the market any time soon.

The movement shouldn’t scare first-time buyers, but it should put them on alert. If huge hedge funds and publicly-traded companies want single-family homes, they must think there’s still massive upside to this investment.

And so should individuals who plan to purchase a home for their family. There’s still a great opportunity for proactive homebuyers to buy the right home for them. Those who do may thank themselves one day in the future, for avoiding the sometimes easier path of renting.

Despite increasing interest by Wall Street, the individual homebuyer still has the upper hand when it comes to buying a home: they have the detail-oriented approach that lets them buy the perfect home – or one that could be perfect with some work.

Large investors don’t view homes that way, and regular homebuyers can take advantage of their own smarts and nimbleness to buy great homes not even considered by Wall Street.


Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.

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