Almost exactly two years ago, on Feb. 27, 2012, Warren Buffet made the following statement in an interview televised on CNBC:
“If I had a way of buying a couple hundred thousand single-family homes and had a way of managing— the management is enormous— is really the problem because they're one by one. They're not like apartment houses. So — but I would load up on them and I would — I would take mortgages out at very, very low rates.”
Two years later it’s evident that others have taken Buffet’s advice — even if he didn’t take it himself.
In 2011 institutional investors — purchasing at least 10 residential properties in a calendar year — purchased 219,000 residential properties nationwide, representing 5.12 percent of all residential sales. That increased to 259,000, representing 5.82 percent of all residential sales in 2012, and 354,000, representing 7.40 percent of all sales in 2013. That’s a 44 percent increase in the institutional investor share of the residential sales market from 2011 to 2013.
Over the last three years these institutional investors have purchased more than 850,000 residential properties, representing 6.14 percent of all sales. But the national numbers don’t tell the whole story. In a select set of markets, purchases made by institutional investors represent more than 20 percent of all residential sales over the past three years.
The heat map below shows where institutional investors have been most active. Hover over any county to see the percent of residential sales going to institutional investors over the past three years, along with home price appreciation and the change in fair market rents for a three bedroom home during the same time period.
A quick analysis of the data strongly indicates institutional investors have helped accelerate home price appreciation in the markets they have concentrated — or possibly they have been very good at picking the right markets.
More than double home price appreciation
For all 1,264 counties nationwide with data available to evaluate institutional investor purchases — or lack thereof — the median price of a residential property increased 14 percent from December 2011 to December 2013. But in markets where institutional investors accounted for more than 20 percent of all sales, home prices have appreciated an average of 31 percent over the last two years. It’s important to note that this is only 14 counties accounting for less than 1 percent of the U.S. population.
In counties where institutional investor purchases accounted for 10 percent or more of all residential property purchases from 2011 to 2013, home prices have increased an average of 23 percent. This is 88 counties, accounting for 12 percent of the U.S. population.
Rents rising at a slower pace
Meanwhile institutional investors are not appearing to have the same effect on fair market rents, as published by the U.S. Department of Housing and Urban Development.
In fact the opposite is true.
Fair market rents on three-bedroom homes for all 1,264 counties increased an average of 7 percent between 2011 and 2013, but only increased 6 percent in counties where institutional investors accounted for 20 percent or more of residential purchases, and only increased 5 percent in counties where institutional investors accounted for 10 percent or more of residential purchases.