The U.S. Housing Market Is Still In The Clutches Of The Pandemic, But Some Investors Are To Blame

The state of the nation's housing market is starting to cool down after a record-breaking buying frenzy fueled by the pandemic, low mortgage rates, and big-time investors snatching up single-family homes during the tail end of the pandemic. 

The activity caused a massive rupture in the housing market, with housing prices soaring through and rent in major cities soaring, only adding more problems to essential tenant issues for some. The Federal Open Market Committee (FOMC) has been hiking rates ever so slightly in an effort to dampen soaring inflation, which recently hit a 40-year high as the pandemic, geopolitical tension, and supply chain constraints add fuel to concern economic conditions. 

All of these issues, including others, have now signaled warning signs that the U.S. housing market is on a collision course to come down from its once high, with some experts predicting the crash could be the equivalent of the 2007-2008 Great Recession. 

Yet, with close comparisons to the financial crisis of 2008, and the collapse of the housing market - current prices are still at all-time highs, as investors are throwing their weight behind single-family homes and rentals, driving prices through the roof. 

Big-time investors, alongside economic downturns caused by the pandemic, which saw housing prices plummet during the early months of COVID, were the perfect recipe for major investors to purchase cheap homes and flip them for major profits. 

Invitation Homes (NYSE: INVH), one of America’s largest single-family home leasing companies, saw Q1 revenues climb by more than 12%, with net income to common shareholders increasing by 61.3%. 

Zillow Offers and Redfin Now are also among other major contenders who have inflated their portfolios over the last few years, as the housing market bubble only grew bigger. Yet, as prices climbed across the country and first-time buyers are unable to secure their purchases, companies such as Zillow Offers have since ceased their operations to help existing home buyers as inventory depletes. 

Big-time investors, with excess free-flowing cash, were able to purchase under-market value homes that required more maintenance and repair than what some first-time buyers could afford at the time. 

The quick purchasing power of national investors has pushed regular Americans out of the market, almost completely. In some markets, home prices have climbed by 38.5% in the first 24 months of the pandemic. Markets such as Dallas and Texas saw the biggest increase, with home prices jumping more than 50% from what it was at the start of 2020. 

Newsweek reported back in April that average house prices in April climbed 18.8% year-to-date, as the Federal Housing Finance Agency’s index reported a slowdown in the overall market, as mortgage rates rose and housing supply couldn’t keep up with the soaring demand. 

At first, many experts suggested that the demand would outpace supply, and Americans were concerned about the pandemic and ensuring lockdowns would cause the market to relax a bit - it soon turned out to be exactly the opposite. 

Real estate investors quickly found themselves in a comfortable position, with buying power and the leverage to scoop up property in hot markets. 

According to a report by Redfin, property investors bought more than 77,800 homes, around $53.4 billion worth of homes, during Q1 2022. While this is down by 11.5% compared to Q4 2021, it shows that some powerful players are still making large bets, even as mortgage rates increase and prices have yet cooled down. 

Activity in the market has been largely concentrated in areas where home appreciation has grown the fastest in recent months. 

Some of these areas have seen the biggest influx of new homeowners, and Americans relocating since the start of the pandemic. 

Redfin reported that Atlanta, GA (33.1%), Jacksonville, FL (32.3%), Charlotte, NC (32.2%), Phoenix, AZ (29.0%), and Miami, FL (28.2%) were among the areas that had the largest share of homes purchased by investors in Q1 2022.

While quarter-over-quarter performance has come down, it’s still not enough for organic home buyers to enter the market, and it’s now causing issues for those who are actively looking to purchase property in the coming months. 

With all this activity driven by big-time investors, and low mortgage rates, the nation’s housing market shifted itself into a bubble, and some experts suggest it might soon burst. 

This has been a major cause for concern, which has sparked warning signs, as some suggest the crash could be as bad, perhaps even worse than the collapse experienced in 2008. 

Currently, some housing markets in the country have been labeled “high risk” of major price drops according to CoreLogic predictions. A staggering 73% of housing markets saw their sharpest single month's price drop, with around 45 markets sitting on a 50% and a greater chance of home prices declining in the next year according to the report. 

Still, home prices could see another 5.9% increase between April 2022 and April 2023, but this time it could exclude a majority of the country’s most popular markets. 

The tug and pull between investors and organic home buyers have made the market increasingly risky, and those poised to see property values plummet could face major financial downturns if the market suddenly gets shaken up. 

Market trends, while somewhat predictable, have been difficult to navigate over the last few months, even with real estate investor sentiment still at its peak. 

While it’s looking to slow down, for now at least, there’s still a looming fear that over-stimulus in the market could see major property markets plummet to record lows in the next 12 months. 

The pandemic fueled a buying frenzy which has now led to tight roped market conditions, excluding first-time buyers and spiking home prices to new record highs. 

It’s possible that over the next 12 months, things could soon take a different route, but it’s led many to believe that the current conditions caused by the pandemic could make it increasingly difficult and expensive for some buyers as they look to step into the market.