Lawler: More on Investor Purchases of Single-Family Homes

Single-Family Rental Trade Association Butchers Analysis of Investor Home Purchase Reports

From housing economist Tom Lawler:

Recent reports showing a surge in investor purchases of single-family homes beginning last spring has stunned quite a few housing analysts and led several to reassess the “drivers” of the surprising strength in housing and home prices this year.

One of the reports I’m referring to is from Redfin, and the other is from CoreLogic. While both are based on an analysis of property records, there are key differences.

Before going into some of the potential ramifications of this investor surge, however, I thought it might be useful to discuss these reports – especially in light of a recent “research” report from the trade association “dedicated to advocating on behalf of the single-family rental industry” that completed botched its analysis of these recent reports.

Geographic Coverage:

Redfin “analyzed home sales in the 50 most populous metro areas, but only included 40 metros in this report due to non-disclosure of sale prices in some counties.”

CoreLogic’s report covers 119 MSAs.

Property Type

Redfin’s report covers single-family detached, townhouses, condo/co-ops, and 2-4 family homes.

CoreLogic’s report covers only single-family purchases.

Definition of “Investor”

Redfin defines an investor as “as any buyer whose name includes at least one of the following keywords: LLC, Inc, Trust, Corp, Homes. We also define an investor as any buyer whose ownership code on a purchasing deed includes at least one of the following keywords: association, corporate trustee, company, joint venture, corporate trust. This data may include purchases made through family trusts for personal use.

CoreLogic defines an investor as “an entity (individual or corporate) who retained three or more properties simultaneously within the past 10 years or has a corporate or non-individual identifier on the deed. Examples include LLCs, CORPs, and INCs, to name a few.”  Thus, CoreLogic would include many small investors not captured by Redfin, though it may also include primary-resident purchases by individuals who also own other investment homes.

Types of Investors:

Redfin does not have any data on this.

CoreLogic breaks out investor purchases into three groups based on the number of SF properties “retained”:   small (3-10 properties), middle (11-99 properties), and large (100+ properties).

Timeliness:

Redfin released its Q2/2021 report on July 22, and its Q3/2021 report on November 15, while CoreLogic’s release dates were October 8 and December 23, respectively.  However, its investor purchase total for Q2 was revised upward in the Q3 report to 81,969 from 67,943, suggesting the early release data may be at the expense of complete data (the investor share was revised upward.)  CoreLogic only included purchase count data in the Q3 release.

Here are some numbers from the two reports.

Single-Family Rental Trade Association Butchers Analysis of Investor Home Purchase Reports

The National Rental Home Council (NRHC), a trade association “dedicated to advocating on behalf of the single-family rental industry,” released a “research report” in mid-October of last year that was designed to downplay the role of “large investors” in the single-family housing market that was apparently triggered by the second quarter Redfin and CoreLogic home investor reports.   The authors obviously did not understand these reports and came to ludicrous conclusions.  The report is available here.

Based on its analysis of the Redfin and CoreLogic reports, the NRHC concluded that large investors purchased just 13,376 SF homes in the second quarter of last year compared to CoreLogic’s tally of 80,090 large investor purchases that quarter.  (In its Q2 report CoreLogic did not provide purchase count data.)

How, you might ask, did the NRHC come to such a ridiculously low number?

First, the NRHC assumed that the Redin count of “investor” purchases in Q2 (about 68,000, though that has been revised upward) covered the entire housing market, when in fact it only covered 41 MSAs (40 in the Q3 report).  Second, it assumed that the Redfin investor count included ALL investor purchases, when in fact it probably does not include most small investor purchases.  And finally, NHRC multiplied the Redfin investor purchase count for Q2 by CoreLogic’s large-size investor share of total investor purchase of 20.2% to come up with its 13,376 number (68,000 x .202),

NHRC then compared its 13,376 “large investor” number to existing homes sales (NAR) and new home sales data (Census) to conclude that “large” investor purchases were just 0.74% of total US home purchases in the second quarter of last year.

It is difficult to say whether the NHRC’s analysis was simply sloppy or deliberately designed to downplay the role of large investors in last year’s housing market.

Some might say, of course, that despite the surge in large investor purchases of single-family homes that began last spring, such purchases are still a relatively small part of total home sales (though I would argue that 6.4% is not “small.” CR Note: This also doesn’t include mid-size investors). However, it is important to recognize that large investor purchases have been concentrated in certain parts of the country, and in some markets their share has been anything but small.  (Unfortunately, CoreLogic did not release investor purchases by size for different MSAs.)

For example, in its Q3 report CoreLogic said that the investor share of total home purchases in the Atlanta MSA was 42.8%, while in the Q3 Redfin report (which does not include many small investors) the investor share in Atlanta was 32.0%.

I will have even more on this topic later.

CR Note: This was from housing economist Tom Lawler.