Small Investors in Rental Homes Gave Up During the Pandemic
Rather than dealing with uncertain rental markets, a much larger number than usual of smaller landlords and investors sold their properties, taking them off the rental market.
One story of the housing markets since the pandemic has been unaffordable homes, between rising interest rates and dizzying selling prices, pushing more people into renting. But there’s a flip side, according to a new CoreLogic study. Small investors and landlords found themselves unable to afford continuing a rental business, and so selling their properties and taking them off the rental market.
“Before 2017, when home prices were still recovering from the Great Recession, the number of properties entering the rental stock was more than the number of rental properties that exited,” as CoreLogic explained. That makes sense because prices were low and there was money to be made from rents.
Then home price growth stabilized and, next, shot up by double digits by 2021. The number of properties being sold and exiting the rental market was 50% lower than those entering it.
The big factor was the pandemic. Many people found they could work from home, needed more room, and were able to leave higher-priced rentals in major cities for more affordable and comfortable living elsewhere. This dynamic fed into longer-term demographic shifts from primary to secondary and tertiary markets. That left landlords with more trouble finding tenants.
Larger investors and owners could look ahead and weather the shifts, expecting prices to eventually rebound. Smaller ones without the deep resources could drain what they had or take advantage of inflated prices and cash out, which they did.
Large cities saw the bigger net losses and, given the number of units in play, pushed the average toward a net sell-off.
“In New York and Boston, where the cost of living is high, the number of rental properties sold on Multiple Listing Service platforms in 2021 increased over 60% compared to 2019,” CoreLogic noted. “On the other hand, landlords and investors in low-cost areas were not in a hurry to sell their rental properties. The number of rental homes sold in Phoenix remained at the same level in 2021 when compared to 2019.”
The analysis raises some questions. What number of houses went to large investment or operating firms that were expanding their single-family rental businesses? And to what degree did that sell-off push more people back into rentals to shore up the now higher rents and drive up prices to shrink housing sales after? Did the trend flip everything on its head and again make it a landlord’s market?