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Huge Firms Like Blackstone Are Slowing Their SFR Purchases. They Won't Be Down For Long

Blackstone’s single-family investment arm announced last week that it was pausing all purchases in 38 U.S. cities, making it just the latest example of a huge buyer backing off acquisitions in what was one of the hottest real estate asset classes in the last two years.

But while sales activity is slowing and prices are cooling due to rising interest rates, experts told Bisnow it's only a matter of time before institutional investors, with their ability to buy homes in cash, return to the market in full force with an even bigger advantage over individual homebuyers and mom-and-pop investors.

The housing market has slowed significantly as the Federal Reserve increased mortgage rates.

“They are letting the interest rates re-simple the market, and then they're going to be more aggressive in the future,” said Rod Mullice, an Atlanta developer who said he recently pivoted a for-sale townhome project into a build-to-rent community. 

The Federal Reserve's hikes on interest rates have made an immediate impact on the housing market. Single-family home sales dropped 12% between June and July, and were down 30% year-over-year, according to U.S. Census Bureau data. The average U.S. home price dropped last month for the first time in three years, CNBC reported.

Households pulled the reins back on buying as their costs to borrow from banks jumped. But so have investors.

Some of the biggest institutional homebuyers in the country, including American Homes 4 Rent, Amherst Holdings and My Community Homes, have been reducing home acquisitions by as much as 50%, Bloomberg reported last month, citing unnamed sources.

Blackstone plans to keep purchasing homes in more than 20 high-growth markets, a spokesperson told Bisnow in an emailed statement.

"We are pausing in markets that represent less than 5% of our recent activity," the spokesperson said. 

After reaching a peak in February, when 28% of all home purchases were made by investors, the percentage of single-family houses bought by investors dropped 8% between the first and second quarters, according to CoreLogic.

“We could see a temporary slowdown in buying activity as investors wait for market conditions to sort of settle down,” ATTOM Executive Vice President of Market Intelligence Rick Sharga said.

Quinn Residences CEO Richard Ross and RangeWater Real Estate Managing Director Karen Key

Home price appreciation has generated massive wealth in the last 12 years. In 2010, the Consumer Price Index-adjusted median home price in the U.S. was $249K, and by this May, it was $393,600. In July, the median home sale price was $403,800, according to the National Association of Realtors, a nearly 11% year-over-year increase.

But the tide has quickly turned. As much as 40% of all home listings have adjusted their prices lower, Sharga said.

While price reductions in the second quarter are typical of the housing industry, when a third of home sellers reduce their asking price, Sharga said this year stands out from the norm.

“We’ve seen a much faster increase in list price reductions than we’d normally see,” he said.

Housing prices could fall as much as 20% in more than 180 markets across the country if the company falls into a deeper recession, Moody’s Analytics Chief Economist Mark Zandi recently forecast.

Those price drops haven't made a huge dent in single-family rents yet, although record-setting rent growth from last year has cooled a bit. June rents were up 13.4% year-over-year to an average of $2,495 per month, according to the latest data published by CoreLogic.

“While the annual growth in single-family rents is nearly double that of a year ago and is still near a record level, price growth began decelerating in June,” Molly Boesel, principal economist at CoreLogic, said in a press release. “Nationwide, both year-over-year and month-over-month growth were slower in June than they were earlier this year, and roughly half of the largest U.S. metro areas experienced a slowdown in annual growth in June.”

In the near term, institutional players will slow their purchasing down — and some are switching their focus to investing in build-to-rent instead of seeking to buy existing homes.

“If there is a dent in demand, it is not market-driven, but driven by the inefficiency of operating scattered homes, and the push to a more ‘build-for-rent/build-to-rent model,” Jesse Shemesh, president of the Tampa-based real estate investment firm Point Acquisitions, told Bisnow in email.

The rising cost of debt is not curtailing BTR developer NexMetro Communities’ pipeline of build-for-rent houses this year, Executive Vice President Jacque Petroulakis said. The firm has plans to develop more than 2,000 new homes this year. If anything, there will likely be more demand for single-family rentals, he added.

“Even with the increase in construction costs, we can still offer a very profitable, appealing opportunity for our investors,” Petroulakis said. “With interest rates increasing, that pushes even more potential homebuyers out of the market.”

Developers are on track to deliver more build-to-rent homes this year than ever before, according to Yardi Matrix, with more than 25,000 units under construction. Last year, developers delivered 7,700 new BTR units. But the pipeline could soon slow.

Atlanta-based Quinn Residences CEO Richard Ross said his firm is pushing forward on its plan to increase the number of homes it builds and operates from 3,500 to 5,000 by the end of this year. But it could slow down next year, especially if rent growth slows considerably or even reverses.

“Will that pace continue over the next six to 12 months? Probably not,” Ross said. “Although we are not stopping or out of the market, if you will, we are certainly being more judicious.”

BiggerPockets CEO Scott Trench

Currently, institutional investors own about 5% of the 14 million single-family rentals in the U.S. today. But by 2030, they are expected to control up to 40%, according to a recent study by MetLife Investment Management

Prices could already be in retreat, but interest rates are likely to stay elevated "for some time," Fed Chairman Jerome Powell said last week, adding that there were "no plans in place to stop or pause" its increases to rates — it raised its benchmark rate by 50 basis points in May, then 75 in June and 75 in July. The Fed's next meeting is Sept. 20-21. 

Higher interest rates give institutional investors the advantage of being able to purchase single-family houses without the hoops and hurdles small investors and homebuyers need to clear for mortgages.

“If you're a cash buyer, you're in a position of extreme competitive advantage over investors or buyers who have to finance their purchase,” Sharga said.

Institutional players also will face less competition from mom-and-pop investors, most of whom rely on 30-year fixed-rate mortgages to fund their portfolio growth, said Scott Trench, CEO of, an online education community for home investors that has more than 2.5 million members.

Typically, small investors buy a home, fix it up, rent it out and refinance it with a 30-year mortgage. They would then use those proceeds to buy another home and repeat the process, Trench said. As interest rates have shot up, that model has dropped in viability.

“I have all this equity, the numbers have been great. But I'm kinda stuck now. I can't refinance, and I don't want to sell my property either and do a 1031 exchange because I'm going to swap that interest rate with a higher interest rate,” he said. “The institutions, they're going to use a variety of different debt products.”

Ross said he expects to see small investors begin to market some of their properties due to financial stress as a result of rising rates and high leverage.

"That's an opportunity for some more institutional players to consolidate the market," Ross said. "Rates aren't going back down to 2%. Who knows where they end up, but our cost of financing isn't 30[-year] fixed. We have a lot more options."