More from the brilliant Michael Orr:
“We keep reading everywhere that the housing market is “dominated by institutional investors”. This is often taken to be 1. true and 2. a bad thing and sometimes suggested as a pre-cursor to a market collapse. All of these ideas are based on a false perception of the fundamental nature of the housing market. They also imply a misunderstanding of what the word “dominate” means…
Institutional investors are as active in Phoenix as anywhere, yet they still make up a small part of the market. If they are bidding for the same property as you are, it will certainly feel like they are an important factor. They have deep pockets filled with cash and can be very determined. However they do not even compete for the majority of homes for sale. They are interested only in cheaper homes that they can rehab and rent out for an acceptable cash flow. Even in this small subset of the market, they do not dominate. Small scale investors buy more than twice as many homes as institutional investors. Normal homeowners buy three times as many homes as all investors put together. The market is in fact dominated by ordinary homeowners. Their transactions are by far the largest and most significant part of the market. They always have been. Even at their highest penetration investor purchases never got higher than 40%. Right now they are well below 30% and falling.
Over the last 4 years institutional investors have come to own between 10,000 and 11,000 homes in Maricopa County. This not a very large number. Remember that in March 2009 we had over 10,000 foreclosure notices in a single month. That was a major event. But an inventory of 11,000 rental homes is not big enough to impact the overall market in any major way. It represents less than 1% of the housing stock. It represents less than 1.5 months of sales. If all of these homes were to be dumped onto the market at once through ARMLS it would theoretically increase the active listings from 19,400 to about 30,000. This is still less than what would be considered sufficient for a balanced supply, which would be about 33,000 to 35,000 for ARMLS as a whole. So we would still have a supply shortfall, not a glut.
Of course, these homes will not come onto the market all at once. And as and when they come onto the market over the next several years, the tenants will have to find homes, creating a corresponding increase in demand to offset the increased supply. Only an empty rental homes creates an increase in net supply.”