The number of home sales has been steadily increasing for over a year now, and renters have been the ones paying the price. That’s because many of those purchases were made by investors scooping up distressed homes – so that they could fix them up and rent them out. These investors hope to one day sell the properties for a profit, but while they're waiting on home prices to increase, they've been renting them to families at a much higher rate than we’ve seen in previous years.
Many of these renters had hoped to be homeowners by now, but are paying rent to the very people who prevented them from purchasing a home! After all, investors are able to make cash-only purchases, which eliminates lenders from the equation. So, while “traditional” buyers are busy applying for a mortgage, these investments firms beat them to the punch! They have been able to close on homes in a matter of days because of the cash-on-the-table offers they could make, and as a result, have literally purchased millions of properties for billions of dollars.
The world's largest private-equity firm Blackstone has spent more than $3.5 billion to buy over 20,000 single-family homes, and California-based Colony Capital isn't far behind, spending over $2.2 billion on distressed properties. These investment firms have been scooping up mostly single-family homes built after 1990. In other words, they have purchased the types of homes that many families also wanted to buy. Once the “traditional” buyers realized they were fighting a losing battle, they stopped looking to buy a home and opted to rent something instead.
When the investors purchased all the distressed properties, it solved one of the housing market's problems by eliminating a ton of foreclosures that were dragging down home values. But as you can see, these investors have created a whole new problem!
The tiny supply of homes for sale – coupled with an increased demand – has made home prices go up. That's good news for a struggling housing market, but not so great for “traditional” buyers looking for affordable housing to buy.
But it’s not all bad news. Thanks to this trend, renters are actually getting some relief now!
While there's a shortage of homes for sale, there are plenty available for rent – with an investor as the landlord. Now, the market is flooded with homes for rent, so landlords can no longer charge astronomical prices to renters, like the ones we had seen over the past couple of years. If they do, the renters will simply move into a home owned by someone else!
Recent research shows that rent prices are still climbing in some major cities, but at a rate much slower than property prices. In Phoenix, for example, monthly rent rose 1.3% in February from a year earlier, but listing prices for homes for sale has increased 25% from a year ago.
In Atlanta, it's much of the same, with rents only gaining 0.5% while listing prices climbed 14%, and in Las Vegas, rent prices actually dropped 1.8% while asking prices soared 18%.
The dip in rent prices may cause some investors to list their properties for sale now, instead of waiting for home prices to rise to a level where they can make a profit. If that happens, more Americans will be able to find a home in their price range, but if too many investors dump their properties at the same time, the market could once again be flooded with inventory.
Analysts don't expect that to happen, so for now, reduced rent is a welcomed relief for renters who have been shelling out tons of cash to their landlords for the past few years!
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