Are the Big Boys Leaving the Sandbox? Institutional Purchases Plunge

After rising for 20 straight months, purchases by institutional investors — investors purchasing at least 10 properties a year — plunged 36 percent in January.  The big buyers, including hedge funds like Blackstone and Colony, accounted for only 5.2 percent of all U.S. residential property sales in the month, down from 7.9 percent in December and down from 8.2 percent in January 2013.

The January share of institutional investor purchases represented the lowest monthly level since March 2012 — a 22-month low, according to RealtyTrac’s January 2014 Residential & Foreclosure Sales Report.

Metro areas hit hardest by the big drops in institutional investor share from a year ago included Cape Coral-Fort Myers Fla. (down 70 percent), Memphis, Tenn., (down 64 percent), Tucson, Ariz., (down 59 percent), Tampa, Fla., (down 48 percent), and Jacksonville, Fla., (down 21 percent).

Big investors increased their presence in markets outside the traditional sand states.  Some 23 of the 101 metros analyzed in the report posted year-over-year gains in institutional investor share, including Atlanta (up 9 percent), Austin, Texas, (up 162 percent), Denver (up 21 percent), Cincinnati (up 83 percent), Dallas (up 30 percent), and Raleigh, N.C. (up 15 percent).

The report also shows that short sales and foreclosure-related sales — including both sales to third party buyers at the public foreclosure auction and sales of bank-owned properties — accounted for a combined 17.5 percent of all U.S. residential sales in January 2014, up from 14.9 percent of all sales in December but down from 18.7 percent a year ago.

“Many have anticipated that the large institutional investors backed by private equity would start winding down their purchases of homes to rent, and the January sales numbers provide early evidence this is happening,” said RealtyTrac’s Daren Blomquist. “It’s unlikely that this pullback in purchasing is weather-related given that there were increases in the institutional investor share of purchases in colder-weather markets such as Denver and Cincinnati, even while many warmer-weather markets in Florida and Arizona saw substantial decreases in the share of institutional investors from a year ago.”