April 16, 2024

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(Photo Illustration by Steven Dilakian for The Real Deal with Getty Images)
Builders stuck with a stockpile of extra homes are turning to the boogeyman of residential real estate: investors.
Homebuilders are offering discounted bulk sales of homes to investors, the Wall Street Journal reported. The move comes as rising mortgage rates are sidelining traditional buyers from the market, saddling builders with more inventory than they know what to do with.
In August, homes under construction increased 14 percent year over year, which seemed desirable in a market hamstrung throughout the pandemic by a lack of inventory. But sales were hotter a year ago, when mortgage rates were significantly lower than the 7 percent they’re now approaching. As the market cools, builders need to find different ways to offload new construction homes.
To that end, builders are offering discounts in the range of 10 to 15 percent from estimated retail value, brokers and investors told the outlet. Some are offering as much as 20 percent off for a bulk sale, an attractive option for investors who can save money and energy by keeping holdings close together.
Single-family rental investors pulled back on home purchasing activity in the summer, waiting to see if home prices would start to come down; they haven’t yet, but price growth is slowing. The rising cost of financing was also hampering investors, slowing the likes of KKR & Co.’s My Community Homes, American Homes 4 Rent and Amherst Holdings.
New homes accounted for only 2 percent of investor purchases in July, according to John Burns Real Estate Consulting.
These companies are still eager to be part of the single-family rental market, however, as long as it comes at the right price. Sustained demand and a short supply of homes sparked a boom, making built-to-rent homes the fastest-growing housing sector in the nation. Rents have been on an upward trend, improving investors’ return.
Surging mortgage rates and continued economic uncertainty could endear even more to the rental market in the near future, as financing a home purchase becomes more untenable. Investors scoring discounts on home purchases may wind up reaping even bigger benefits than before.
— Holden Walter-Warner


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