Wall Street is running away from the housing market. But why?

In fact, according to an analysis conducted by John Burns Research and Consulting, institutional investors—those who own more than 1,000 homes—purchase 90% fewer houses in January and February than they did in the first two months of 2022.

Look no further than Invitation Homes, the largest owner of US single-family rental homes, who recently became a net seller. on first quarter of 2023Invitation Homes bought 194 homes, while it sold 297.

That’s a shocking shift. Just a year ago, Invitations Home—which Blackstone helped grow HISTORY divesting in 2019—bought 822 single-family homes and sold only 147 in the first quarter of 2022.

Why did institutional investors like Invitation Homes, which had amassed a portfolio of more than 83,000 single-family homes, pull out of the US housing market so quickly?

The reason: The financial return on each additional home added isn’t very good today after factoring in interest rates, home prices, and rents. In addition to some large investors think that the price of the national house, despite jumping up a bit this springready for another step down.

“We will stop everything [homebuying] strategies,” Tejas Joshi, director of single-family residential at Yieldstreet, which owns more than 700 single-family homesjust said luck. “I don’t think so [house] the prices have gone down … On average, we have another 5% reduction in the country, and it varies by market. Head to the trough, [we’re expecting] 12% to 15% [national] decrease.”

Through the first quarter, Joshi said Yieldstreet has yet to buy a home in 2023. That’s despite the fact that Yieldstreet wants to grow its single-family home portfolio from its current value of nearly $200 million to $1.5 billion over the next five years. If the company goes through with it, that would mark a 650% increase in single-family holdings by 2028.

But it’s not just about house prices: Interest rates on “floating” loans offered to companies like Yieldstreet are still in the 7% to 8% range, Joshi said. Those high interest rates, combined with bubble home prices, mean that buying new single-family rentals doesn’t make much sense right now for some institutional investors.

Joshi says that Yieldstreet is waiting for either house prices to go down another leg or interest rates to go back down. Or both.

“If short-term [interest] rates are down about 4%, and if house prices are about 15% lower than last year’s peak, that’s a valuation that supports the equity return that investors should do,” Joshi said. luck.

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