Big U.S. Landlords Struggle to Identify Homes Worth Buying.

"It isn't just regular Americans who are having trouble buying houses these days.

High borrowing costs and the shortage of properties for sale have slowed home buying by Wall Street's rental giants as well, limiting their ability to grow at the same time suburban rents are climbing.

The big landlords' computers are still poring over listings, scanning for houses they can buy and turn into rentals. But financing has become expensive even for them, and competition is fierce from people willing to pay up for the few homes hitting the market. Prices have pushed past what big landlords, including AMH and Invitation Homes, can pay and still meet profit targets.

There has rarely been a better time to own tens of thousands of single-family rentals. Record home prices, the highest mortgage rates in a generation and limited properties for sale are pushing homeownership beyond the reach of many people and leave plenty of room for rents to rise and still be cheaper than owning, analysts said.

Wall Street stock pickers expect shares of AMH and Invitation to break from their recent range and race ahead of the broader market. But the acceleration could sputter if the firms are unable to add to their rent rolls.

"We write hundreds of offers every week at price points that we'd be willing to transact at," Invitation Chief Executive Dallas Tanner told investors this summer. "We're striking out quite a bit."

Landlords with 1,000 properties or more accounted for 0.4% of U.S. home purchases during the second quarter, down from a peak of 2.4% in late 2021, according to John Burns Research & Consulting.

Suburban America's mega-landlords have seldom accounted for such a small share of the market since they emerged after the 2008 housing crash. Property moguls, private-equity firms and other big investors started out scooping up foreclosed homes on the courthouse steps, and when those ran out they took to the open market to buy more.

They ramped up purchasing after the Covid lockdowns -- as did smaller investors -- until about one in four homes sold in boomtowns such as Miami, Houston and Phoenix were being bought by someone who would never move in.

Sidelined landlords are a sign that the Federal Reserve might be closing in on the magic number for interest rates needed to shift the housing market down from overdrive and slow the breakneck spending that accompanies billowing property values.

Invitation, which owns about 83,000 houses, has been selling properties that have appreciated to the point that they are yielding less than 4% and putting the proceeds in the bank, where the cash is earning more than 5%.

Executives said they are amassing money to spend when pools of homes are offered by motivated sellers, such as the property fund that sold Invitation 1,870 houses in July for $645 million. That was less than seller Starwood Real Estate Income Trust paid for the houses during the 2021 frenzy, according to securities filings and people familiar with the matter.

Before that bulk purchase, Invitation had added just 470 houses in 2023, mostly straight from builders. It sold 675 in the first half and executives said they expect to sell more aggressively in the second.

AMH, formerly known as American Homes 4 Rent and owner of about 59,000 houses, was also a net seller during the first half of 2023. It sold nearly 1,100 while adding 780, mostly built in-house. AMH plans to build more than 2,200 houses total in 2023 and has bought land to add 13,000 more down the road. Yields are greater with houses that AMH builds specifically to rent than those it can buy, especially now that lumber prices have fallen back from their pandemic surge, CEO David Singelyn told investors at a conference last week.

The same dynamics that are making it hard to buy houses make it a great time to be renting them out.

"You can't paint a better backdrop for pricing power for AMH and Invitation," said John Pawlowski, managing director at real-estate research firm Green Street. "The economy is still reasonably healthy so people are fully employed, wage growth is solid, but the barriers to homeownership are staggering."

Renting single-family homes has become much cheaper than financing purchases in the markets where the big landlords operate, said Rick Palacios, director of research at John Burns Research & Consulting. "That math definitely works in their favor right now, especially for entry-level buyers," he said.

AMH's Singelyn estimates that AMH's rents, which have averaged $2,063 a month, could rise more than 30% before they reach the cost of buying comparable houses. "The reality is the rental-rate increases, as aggressive as they've been, have not kept up with home-price appreciation," he said." [1]

1.  Big U.S. Landlords Struggle to Identify Homes Worth Buying. Dezember, Ryan. 
Wall Street Journal, Eastern edition; New York, N.Y.. 21 Sep 2023: A.1.