Institutional homebuyers are losing their love for the US housing market — at least for now.
Starwood Capital CEO Barry Sternlicht isn’t holding back his criticism of the Federal Reserve: On several occasions, he told CNBC anchormen that the central bank’s aggressive rate hikes could soon trigger a deep recession.
It’s easy to see why Sternlicht is so openly critical of the Fed: Starwood invests primarily in real estate, where the Fed’s rate hikes have already created major economic problems.
Last week, Bloomberg reported that Starwood Real Estate Income Trust plans to buy more than 2,000 single-family homes. Starwood — which declined Fortune’s interview request — has not publicly explained its rationale for exiting the residential real estate market, where its REIT owns more than 3,200 single-family homes. However, it’s clear that the decision to buy these 2,000 homes comes at a time when Starwood is facing a surge in redemption requests and is struggling in the commercial real estate sector.
On the face of it, one might think that Wall Street types would exit commercial real estate — where office prices are falling rapidly — and instead dive into housing, where nationwide real estate values are rebounding after a modest price correction last fall .
However, institutional companies are also cautious when it comes to housing construction. According to analysis by John Burns Research and Consulting, institutional investors — those who owned over 1,000 homes — were buying 90% fewer apartments in January and February than in the first two months of 2022.
Why are institutional investors withdrawing from the US real estate market so quickly?
It boils down to the fact that the financial return on each additional home just isn’t that great right now, when you factor in interest rates, home prices, and rents. Not to mention that some big investors like Yieldstreet believe that despite a slight increase this spring, national house prices are poised for another fall.
“Overall we are pretty much on a break [homebuying] Strategies,” Tejas Joshi, director of single-family homes at Yieldstreet, which owns over 700 single-family homes, recently told Fortune. “I don’t believe [house] Prices have already bottomed out… On average we are seeing another 5% fall nationwide and it will vary by market. From the top to the bottom, [we’re expecting] 12% to 15% [national] Waste.”
Notice that Invitation Homes — which owns 83,010 single-family homes — is no longer on a buying spree
Not only are institutional investors buying fewer homes, some are also reducing their overall single-family home portfolios.
Then you’ve come to the right place at Invitation Homes, the largest single-family home owner in the United States who recently became a net seller. In the first quarter of 2023, Invitation Homes bought 194 homes and sold 297.
A year earlier, in the first quarter of 2022, Invitation Homes — which Blackstone helped grow before selling it in 2019 — bought 822 single-family homes and sold just 147.
Check out the charts for American Homes 4 Rent, which owns 58,639 homes and is no longer on a buying spree
Invitation Homes isn’t alone: American Homes 4 Rent was also a net seller in the first quarter.
In the first quarter of 2023, American Homes 4 Rent sold more single-family homes (666) than it bought (312). That net decline caused the Las Vegas-based company’s portfolio to shrink to 58,639 homes from 58,993 rental homes nationwide.
A year earlier, in the first quarter of 2022, American Homes 4 Rent bought 1,131 homes and sold just 171 homes.
Would you like to stay up to date on the housing market? Follow me on Twitter at @NewsLambert.