Spring House Hunt: Many corporate home buyers are steering clear of here — for now – Boston.com
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Cameron Sperance — Boston.com correspondent
April 6, 2022 11:19 am
Corporate landlords might be the only type of buyer shying away from the competitive battle royale that is securing a deed on a home in Greater Boston these days.
Don’t bank on this absence lasting indefinitely, say those in local and national real estate circles.
Real estate investors — defined as any institution or business that purchases real estate — bought 18.4 percent of the US homes purchased in the last three months of 2021, a record high, according to Redfin. This accounts for roughly 80,000 homes valued at a combined $50 billion. The hefty pickup in investment residential sales comes amid a national housing shortage (we were nearly 4 million homes behind heading into 2021, according to Freddie Mac) that is sending prices skyrocketing in metropolitan areas of all sizes.
Local real estate brokers, sales representatives, and analysts say Greater Boston’s dearth of housing stock and hyper-competitive environment — a market with stunningly-over-the-asking-price bids that make a deal unfeasible for investment teams — has generally kept investor buyers out of the region.
But never say never.
“The message I have is it’s coming,’’ said Mike DelPrete, a global real estate technology strategist and scholar-in-residence at the University of Colorado Boulder. “These are not companies that were founded to say, ‘We’re going to stay in Phoenix and Atlanta for our entire corporate life.’’’
Investors favor low- and mid-priced homes, making Sun Belt markets with a lower cost of living ideal for a residential shopping spree. Investors posted their highest market shares in Atlanta, Charlotte, N.C., and Jacksonville — all part of metropolitan areas with median home sale prices below the national median ($383,000, according to Redfin) seen at the end of last year.
It’s easier for investment groups to achieve scale in regions like those compared with Greater Boston, where the median single-family home sale price was $755,000 in February. This is a nearly 17 percent jump from a year ago, according to the Greater Boston Association of Realtors.
Higher prices and the limited availability of developable land in Greater Boston is the same headwind keeping out single-family rental housing, typically what investor buyers offer with homes they purchase.
Critics argue this isn’t a business the region should necessarily welcome. Investor buyers are accused of gobbling up homes when the housing supply is already limited and of pushing rents higher. Investors counter that they’re a small part of the overall residential housing market and that a failure to increase the nation’s housing supply following the Great Recession is really to blame for soaring prices.
New England wasn’t entirely absent from the 40 US metro areas with the top share of investor home sales in the fourth quarter of last year. Providence made the list, but with only 6 percent of sales going to investors. (It was the smallest share of all the metropolitan areas Redfin mentioned in its analysis.)
Providence, which had a median sale price purchased by investors at just under $270,000 in the fourth quarter, is also in a different price bracket than Greater Boston to the north.
“I just don’t see real players on an institutional level at the prices that these places are going for’’ in Greater Boston, said Charlie Ring, a broker at Coldwell Banker Realty.
Greater Boston’s regional housing shortage has ushered in an era of off-market deal-making and jaw-dropping bidding wars — a home in Cambridge last summer went for nearly $1 million over its list price. Nearly 160 homes in Boston sold for at least $100,000 over their respective list prices in the first six weeks of this year, according to Redfin.
That is an entirely different ballgame compared with what is happening in more affordable Sun Belt markets.
“Investors are looking at metrics and rent, and they have an internal rate of return in mind. They can’t outbid you time and time again to make that work,’’ said Aaron Jodka, a Boston-based director of research of US Capital Markets for Colliers. “It’s hard to do that in a place like Boston, so that single-family rental story has not been as prevalent here as in Phoenix, Florida, and the Carolinas.’’
The need for housing in the area makes it competitive enough without factoring in major companies like Toronto-based Tricon Residential, American Homes 4 Rent, and Invitation Homes — backed by investment and financial giants like Blackrock and Blackstone.
“There are a lot of dynamics that I’ve seen exclude some of these larger entities trying to buy single-family houses and compete with people who are desperate,’’ Ring said. “I say this to buyers often: ‘There are people who need houses worse than you.’ They’re going to be ready to make more evasive maneuvers.’’
There are other ways investor buyers aren’t finding much luck, both in Boston as well as nationally.
Zillow pulled the plug on its Zillow Offers iBuying — or instant buying — platform late last year after the company revealed it lost more than $300 million buying homes at prices higher than it expected to sell them. Zillow’s model involved buying homes directly from owners and relisting the properties after a round of light renovations. The company blamed ongoing supply chain issues for bogging down the home-flip timeline.
Massachusetts is tougher for investor buyers to gain much traction compared with Sun Belt states because the Bay State allows attorneys to run closings only in person. Lawmakers allowed more efficient closing measures like mobile notary services only during the pandemic state of emergency.
“The process is more layered,’’ said Melvin A. Vieira Jr., president of the Greater Boston Association of Realtors and an agent with RE/Max Destiny.
But he didn’t say the door is entirely shut on investors entering the Boston residential sector. It’s just a little more nuanced.
There has been a wave of deals, typically through limited liability corporations, on two- and three-decker properties in neighborhoods like Charlestown, South Boston, and Dorchester that lead Vieira to believe investors — albeit smaller ones — are gaining more footing in the city.
Others like DelPrete think it is too soon to write off other aspects of investors in the residential space, like companies serving as middlemen to help buyers better compete in a market where all-cash offers are increasingly common.
These startups include companies like Flyhomes (which is active in Massachusetts) that are more about fronting buyers the cash to buy a home or purchase one on the buyer’s behalf and turn around and sell it to them.
“An interesting way to look at that is how it’s funded by Wall Street with billions of dollars of venture capital with these companies,’’ DelPrete said. “It’s kind of like Wall Street is solving a problem created by Wall Street.’’
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