Wall Street, Main Street, Your Street: How Investors Impact the Single-Family Housing Market Sean Brunson University of North Carolina at Charlotte November 2019
Home Price Indices 140 130 120 Case−Shiller 110 Zillow 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Popular Press “Affordable Housing Crisis Spreads Throughout World” – Wall Street Journal (2019) “America’s Housing Affordability Crisis Only Getting Worse” – Forbes (2019) “America’s Housing Affordability Crisis Spreads to the Heartland” – Bloomberg (2019) “Investors Are Buying More of the U.S. Housing Market Than Ever Before” – Wall Street Journal (2019) “1st-Time Homebuyers Are Getting Squeezed Out By Investors” – NPR (2019)
Overview Empirically examine the entrance of institutional investors in the single-family housing market before and after the 2007-2009 recession Using home sale transactions for the Charlotte region between the years 2005-2017, find that institutional investors paid a discount of about 8.13%-11.19% per transaction Additionally, find that an increase in investor home purchases had a positive statistical impact on individual home prices but only a moderate economic impact
Economic Policy/Proposals Executive Order Establishing a White House Council on Eliminating Regulatory Barriers to Affordable Housing – Donald Trump (2019) American Housing and Economic Mobility Act – Elizabeth Warren (2019) People First Housing – Julian Castro (2019) Assembly Bill 1482 – California (2019)
Previous Literature A small, but growing literature, has started to document this activity given that it is a fairly new occurrence: Transaction level: Allen et al. (2018) and Smith and Liu (2018) Aggregate level: Garriga, Gete, and Tsouderou (2019), Lambi-Hanson, Li, and Slonkosky (2019), and Mills, Molloy, and Zarutskie (2019)
Was It Just a Demand Shock? Could be that investors were just consolidating the existing single-family rental market Could be that preferences shifted from owning to renting Could be that investors were actually outbidding owner-occupiers
Data Data comes from Metrostudy, which maintains one of the most comprehensive U.S. housing databases Restrict our study to the detached single-family housing market Each observation contains the sale price, sale date, address, sale type, loan amount (if applicable), and other housing characteristics Most importantly, each observation contains the name of the seller, purchaser, and lender
Identifying Investors We identify investors and non-investors in the Charlotte housing market using the names of the seller and purchaser Define investors as non-individuals that are not banks, mortgage/credit lenders, relocation companies, building companies, nor government entities This leaves us with companies we believe have purchased homes for investment purposes Many of the company names include words such as “investment” or “asset management”
Identifying Institutional Investors Define an institutional investor as an investor that has filed as a publicly traded company, has filed as a REIT with the SEC, or has filed a Form D with the SEC These institutional investors include companies such as Invitation Homes, American Homes 4 Rent, and Colony Starwood Homes Many of these institutions are similar to those used in Mills, Molloy, and Zarutskie (2019) and Smith and Liu (2018)
Summary Statistics Institutional Non-Institutional Variables All Investors Non-Investors Investor Investor Total Observations 336,878 14,850 322,028 7,365 7,485 Has Mortgage 82.55% 12.42% 85.78% 0.00% 24.65% Purchased By Investor 14,850 Type of Sale New 82,321 1.65% 25.49% 1.94% 1.36% Regular Resale 230,655 81.46% 67.87% 86.83% 76.18% REO Sale 23,902 16.89% 6.64% 11.23% 22.46% Sale Characteristics Sale Price $256,231.98 $167,710.56 $260,314.06 $171,191.88 $164,285.06 Age 18.67 25.68 18.34 13.85 37.33 Bathrooms 2.40 2.17 2.41 2.33 2.01 Bedrooms 3.48 3.25 3.49 3.40 3.11 Lot Acres 0.49 0.36 0.50 0.22 0.50 Sqft Finished 2,343.47 1,909.81 2,363.47 2,059.06 1,762.96 Loan Characteristics Loan Amount $221,303.80 $19,381.16 $190,208.84 $0.00 $38,451.61
Investor Purchases (2005)
Investor Purchases (2006)
Investor Purchases (2007)
Investor Purchases (2008)
Investor Purchases (2009)
Investor Purchases (2010)
Investor Purchases (2011)
Investor Purchases (2012)
Investor Purchases (2013)
Investor Purchases (2014)
Investor Purchases (2015)
Investor Purchases (2016)
Investor Purchases (2017)
Homes Bought by Investors from Owner-Occupiers Institutional Investor Non−Institutional Investor 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Rental Units that are Single-Family Units 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Was It Just a Demand Shock? Could be that investors were just consolidating the existing single-family rental market – No Could be that preferences shifted from owning to renting Could be that investors were actually outbidding owner-occupiers
Homeownership Rate 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Was It Just a Demand Shock? Could be that investors were just consolidating the existing single-family rental market – No Could be that preferences shifted from owning to renting – No Could be that investors were actually outbidding owner-occupiers
Methodology p i , t = β 0 + β X i , t + δ 1 PurchasedBy i , t + δ 2 REO i , t + δ 3 NoMortgage i , t + δ 4 RIA C , [ t − 1 , t − 6] + ZC i + QY t + ǫ i , t (1)
Main Results Baseline τ = 0.25 τ = 0.50 τ = 0.75 Variable Model 1 Model 2 Model 1 Model 2 Model 1 Model 2 Model 1 Model 2 Purchased By Investor -0.091*** -0.096*** -0.11*** -0.128*** (-31.398) (-18.774) (-101.694) (-71.106) Purchased By Non-Institutional Investor -0.291*** -0.35*** -0.308*** -0.233*** (-78.627) (-65.573) (-76.828) (-69.865) Purchased By Institutional Investor -0.114*** -0.081*** -0.098*** -0.112*** (-30.762) (-26.137) (-37.761) (-49.252) Recent Investor Activity 0.006*** 0.006*** 0.004*** 0.003*** 0.005*** 0.005*** 0.006*** 0.006*** (10.327) (9.326) (5.405) (4.36) (10.838) (9.256) (11.71) (10.905) Intercept 11.087*** 11.069*** 10.931*** 10.975*** 11.13*** 11.123*** 11.208*** 11.221*** (353.919) (353) (149.634) (142.7) (242.498) (219.482) (323.216) (285.251) R 2 0.775 0.774 0.55 0.55 0.584 0.585 0.607 0.608 N 319,423 319,423 319,423 319,423 319,423 319,423 319,423 319,423
Issues The largest concern surrounds the type of homes that institutional investors buy Institutional investor’s main goal is to maximize returns and can accomplish this by buying homes at the lowest value Our results could be driven by the homes that the investor chose and not by investors themselves
American Homes 4 Rent “We are focused on acquiring homes with a number of key property characteristics, including: (i) construction after 1990; (ii) three or more bedrooms; (iii) two or more bathrooms; (iv) a range of $100,000 estimated minimum valuation to $350,000 maximum bid price; and (v) estimated renovation costs not in excess of 25% of estimated value. We target areas with above average median household incomes, well-regarded school districts and access to desirable lifestyle amenities.”
Summary Statistics Institutional Non-Institutional Variables All Investors Non-Investors Investor Investor Total Observations 336,878 14,850 322,028 7,365 7,485 Has Mortgage 82.55% 12.42% 85.78% 0.00% 24.65% Purchased By Investor 14,850 Type of Sale New 82,321 1.65% 25.49% 1.94% 1.36% Regular Resale 230,655 81.46% 67.87% 86.83% 76.18% REO Sale 23,902 16.89% 6.64% 11.23% 22.46% Sale Characteristics Sale Price $256,231.98 $167,710.56 $260,314.06 $171,191.88 $164,285.06 Age 18.67 25.68 18.34 13.85 37.33 Bathrooms 2.40 2.17 2.41 2.33 2.01 Bedrooms 3.48 3.25 3.49 3.40 3.11 Lot Acres 0.49 0.36 0.50 0.22 0.50 Sqft Finished 2,343.47 1,909.81 2,363.47 2,059.06 1,762.96 Loan Characteristics Loan Amount $221,303.80 $19,381.16 $190,208.84 $0.00 $38,451.61
Self Selection Figure A Percentage of Homes Bought by Purchaser by Sale Price 10.0% 8.0% Institutional Investor 6.0% Non−Institutional Investor 4.0% 2.0% 0.0% $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 Sale Price Figure B Percentage of Homes Bought by Purchaser by Sale Price 10.0% 8.0% Institutional Investor 6.0% Owner−Occupier 4.0% 2.0% 0.0% $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 Sale Price
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