Rising Home Prices Freezing Out Some Investors

Real-estate investors carried housing and distressed markets through the Great Recession, but their success could spur the rental boom and higher home prices at the expense of critical homebuyer groups, a new report has found.

Clear Capital and ATTOM Data Solutions released their findings in a joint white paper on Thursday.

The report documented shifting trends in investor activity and demographics in Dallas, Nashville, and Seattle over the course of nearly a decade.

According to the authors, real-estate investors from the financial crisis onward have included those with a lot of cash handy, institutional entities like banks, and, more recently, smaller-time players in attendance at distressed-property auctions.

Three cities reviewed in the report provide windows on those changes, which were Dallas, Seattle, and Nashville.

Because the Dallas real-estate market weathered the financial crisis relatively better than other cities, fewer investors were attracted to flip properties, but those in the rental market have seen a boom in the years since.

In Dallas, as in some other cities, median home prices have ticked up to nearly $189,525 on average, according to the report.

Lower home prices in Nashville attracted buyers over the course of the crisis and recovery, leaving distressed properties to account for a smaller share of the market for institutional investors over the last decade, the report found.

Seattle was different in that it was highly disadvantageous in the early years of the crisis but rebounded in the later years, with median home prices peaking at $375,000 in that city in the third quarter last year.

All of this points to an investor surge possibly withdrawing in more numbers from some real-estate markets, even as rental investors flip more distressed properties.

In the meantime, increasing home prices may be scaring away homebuyer groups like millennials and first-time buyers, the authors found.

“A housing recovery that is highly dependent on real estate investors is a bit of a double-edged sword,” Daren Blomquist, SVP at ATTOM Data Solutions, said in a related statement.

“Rapidly rising home values have been good for homeowner equity, but also have caused an affordability crunch for the first-time homebuyers the housing market typically relies on for sustained, long-term growth,” Blomquist added.