Institutional investors are back and builder sentiment rebounds

Your 5 minute weekly real estate update

Kimi Green
June 15, 2023

Large single-family rental (SFR) investors experienced a temporary decline in purchases due to a shortage of available homes for sale. However, Wall Street SFR firms are now back in the market, targeting the $300,000 to $500,000 price range and increasing their home purchases. States like Georgia, Tennessee, Alabama, Texas, and Arizona saw the highest percentages of single-family home sales to institutional investors in Q1 2023, indicating increased housing inventory.
The Southeast and Southwest regions, including surprising markets like Austin/Round Rock in Texas, have experienced an increase in homes for sale. Institutional investors currently control a small portion (3-5%) of the SFR market, but are expected to expand their presence.
The build-to-rent market represents about 18% of the SFR market, with expectations of adding around 13 million SFR homes by the end of the decade. The new construction of build-to-rent homes reached a record high in 2022, with Phoenix, Dallas, and Detroit leading the way. These trends present both opportunities and challenges for first-time homebuyers and the multifamily rental market.

The housing market is currently dominated by purchase loans, with nearly 9 out of 10 mortgages originated being for home purchases. May saw a record high of 88% of market activity being purchase locks, indicating strong demand. While there was an overall increase in rate lock activity, purchase locks were up by almost 15%, and cash-out refinances increased by 7%. However, mortgage lending remains constrained, with purchase lock counts down compared to previous years.
The average purchase price and loan amount have continued to rise, indicating the affordability challenge in the market. Economic uncertainty has led to tightening credit standards, with increasing credit scores and larger down payments observed among recent originations.
It's important to note that purchase loans differ from other types of loans such as refinancing or home equity loans, as they are specifically used to finance the acquisition of a new property rather than modifying existing loan terms or leveraging existing home equity.

The NAHB Housing Market Index is a monthly survey that measures how home builders feel about the housing market. It uses a scale from 0 to 100, where above 50 means builders are positive and below 50 means they are negative. The index includes three components: current sales conditions, sales expectations for the next six months, and buyer traffic.
In 2022, the index dropped from 67 to a low of 31, causing pain for large builders. However, it has since recovered to 50, indicating overall positive sentiment among builders. Groundfloor continues to fund new construction loans as we see a great benefit for our independent builders.
There has been a slowdown in new home starts and building permits over the past 14 months as larger builders worked through their existing inventory. However, the re-ignition of new construction is seen as a positive, along with Groundfloor borrowers delivering newly renovated homes. The national housing market remains constrained by a lack of inventory, which is different from the oversupply crisis of 2008.

or to participate.