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According to this article[1], large investment companies accounted to 16.1% of all single family home sales in the US in Q2. I'm not an analyst. But, I would th

According to this article[1], large investment companies accounted to 16.1% of all single family home sales in the US in Q2. I'm not an analyst. But, I would think that would be plenty of extra demand to influence the price?

trident5000 5y ago
Investment companies are far less likely to lead a speculative bubble than retail buyers. They are professional investors who go through a valuation process. They have also always been part of the market.
- dd36 5y ago
  Institutional investment in single family housing stock is brand new. Less than a decade old.
  - rsj_hn 5y ago
    Nevertheless they are not buying houses for emotional reasons, but for the income stream. FYI, the reason this is happening is that interest rates are so low that people are desperate for yield, and rental yield fits the bill. There are a lot of benefits: - professionally managed properties. Most small time landlords are incompetent -- the horror stories you see about landlords being petty or vindictive is from the small time landlord, not the professional manager. - lower rental prices for properties people want to own. Institutional investors can move funds more quickly to increase rental stock where it is most in demand. Here, too, the yield will fall, which is another way of saying lower rents. Moreover despite the moral panic by journalists that ordinary households are being priced out, this doesn't actually happen because most institutional investors operate in unconstrained areas, where home prices track construction costs, at most with a small delay. In these areas, an increase in renter demand will result in more property built much more quickly if the institutional investors participate. This actually drives down prices over the long term by increasing supply. However in constrained areas, this would drive up prices for SFHs. But I thought people weren't supposed to buy SFHs in constrained areas - and institutional investors have been in the multi-unit market for over a century.
    - satellite2 5y ago
      > home prices track construction costs But construction costs track home price so this doesn't prevent an unbounded faster than inflation growth.
      - rsj_hn 5y ago
        Yes, the correlation is not necessarily causation, but we can add some other data points -- for example the size of new construction has been steadily growing at roughly 2%, which does not suggest any kind of odd explosion in house size as a result of the price going up. Of course ultimately, ability to pay determines the price of housing and also house size.
- smartbettor 5y ago
  /s
- oarabbus_ 5y ago
  History indicates the opposite. The largest speculative bubbles in history are typically driven by professional investors or high-net-worth individuals, not retail buyers.
  - Ekaros 5y ago
    Your fund managers make their money in short term win or lose. So they really do not have option to just sit on money, but have to look someplace to invest. Even if it doesn't work out in long term.
  - trident5000 5y ago
    Where is this data coming from? Thats simply not true. The dot com bubble, housing bubble, crypto bubbles were all retail.
    - oarabbus_ 5y ago
      Where is this data coming from? Almost nothing you said is true or perhaps you don't actually understand what retail traders are. Retail traders, essentially by definition, do not have sufficient capital to cause large asset bubbles. Once an individual's net worth exceeds a threshold (generally enough to where their purchases or sales affect the spreads and liquidity of the underlying market) they are not considered "retail" by definition. Even now, with retail being the most powerful they've ever been in human history, they might be able to squeeze a single, small or mid cap equity (GME being the most famous example) but they cannot move sectors of markets, much less create a generalized bubble in ANY asset class. Crypto 2017 is the only "bubble" which you might claim was retail-driven (even then, you'd need to provide evidence for such a claim), and even that had institutional money such as Grayscale, high-net-worth speculators, and algotrading from high-net-worth speculators driving the bubble. Not to mention that was a tiny bubble relative to any equity market bubbles. It's well-known Tech bubble 2001 was driven by investment banks. It's even more well known that the 2008 bubble was driven by investment banks, hedge funds, and derivatives trading. The current $2.5T+ market cap crypto bubble has been formed by large institutional buyers, high net worth individuals, and corporations pumping money. Dutch Tulips, South Sea Trading Company stocks, 90s Japan were all from institutions or high-net-worth individuals (nobles, royalty, corporations, etc) as well. Your post really couldn't be further away from reality. The historic bond bubbles have all been inflated by institutions and governments. Making a claim that even one bubble, much less "most" bubbles are caused by retail, is an outrageous claim which requires extraordinary evidence that you would need to provide.
ashtonkem 5y ago
Perhaps. Unlike in 2008 though, those buyers aren’t typically hoping to sell those houses for a short term profit, most of those investors are hoping to turn them into rent income. This could easily distort prices, and have pernicious social effects, but might not be an asset bubble. After all, if those investors manage to actually charge enough rent to make a profit, is the asset really over priced then?

trident5000 5y ago

Investment companies are far less likely to lead a speculative bubble than retail buyers. They are professional investors who go through a valuation process. They have also always been part of the market.

dd36 5y ago
Institutional investment in single family housing stock is brand new. Less than a decade old.
- rsj_hn 5y ago
  Nevertheless they are not buying houses for emotional reasons, but for the income stream. FYI, the reason this is happening is that interest rates are so low that people are desperate for yield, and rental yield fits the bill. There are a lot of benefits: - professionally managed properties. Most small time landlords are incompetent -- the horror stories you see about landlords being petty or vindictive is from the small time landlord, not the professional manager. - lower rental prices for properties people want to own. Institutional investors can move funds more quickly to increase rental stock where it is most in demand. Here, too, the yield will fall, which is another way of saying lower rents. Moreover despite the moral panic by journalists that ordinary households are being priced out, this doesn't actually happen because most institutional investors operate in unconstrained areas, where home prices track construction costs, at most with a small delay. In these areas, an increase in renter demand will result in more property built much more quickly if the institutional investors participate. This actually drives down prices over the long term by increasing supply. However in constrained areas, this would drive up prices for SFHs. But I thought people weren't supposed to buy SFHs in constrained areas - and institutional investors have been in the multi-unit market for over a century.
  - satellite2 5y ago
    > home prices track construction costs But construction costs track home price so this doesn't prevent an unbounded faster than inflation growth.
    - rsj_hn 5y ago
      Yes, the correlation is not necessarily causation, but we can add some other data points -- for example the size of new construction has been steadily growing at roughly 2%, which does not suggest any kind of odd explosion in house size as a result of the price going up. Of course ultimately, ability to pay determines the price of housing and also house size.
smartbettor 5y ago
/s
oarabbus_ 5y ago
History indicates the opposite. The largest speculative bubbles in history are typically driven by professional investors or high-net-worth individuals, not retail buyers.
- Ekaros 5y ago
  Your fund managers make their money in short term win or lose. So they really do not have option to just sit on money, but have to look someplace to invest. Even if it doesn't work out in long term.
- trident5000 5y ago
  Where is this data coming from? Thats simply not true. The dot com bubble, housing bubble, crypto bubbles were all retail.
  - oarabbus_ 5y ago
    Where is this data coming from? Almost nothing you said is true or perhaps you don't actually understand what retail traders are. Retail traders, essentially by definition, do not have sufficient capital to cause large asset bubbles. Once an individual's net worth exceeds a threshold (generally enough to where their purchases or sales affect the spreads and liquidity of the underlying market) they are not considered "retail" by definition. Even now, with retail being the most powerful they've ever been in human history, they might be able to squeeze a single, small or mid cap equity (GME being the most famous example) but they cannot move sectors of markets, much less create a generalized bubble in ANY asset class. Crypto 2017 is the only "bubble" which you might claim was retail-driven (even then, you'd need to provide evidence for such a claim), and even that had institutional money such as Grayscale, high-net-worth speculators, and algotrading from high-net-worth speculators driving the bubble. Not to mention that was a tiny bubble relative to any equity market bubbles. It's well-known Tech bubble 2001 was driven by investment banks. It's even more well known that the 2008 bubble was driven by investment banks, hedge funds, and derivatives trading. The current $2.5T+ market cap crypto bubble has been formed by large institutional buyers, high net worth individuals, and corporations pumping money. Dutch Tulips, South Sea Trading Company stocks, 90s Japan were all from institutions or high-net-worth individuals (nobles, royalty, corporations, etc) as well. Your post really couldn't be further away from reality. The historic bond bubbles have all been inflated by institutions and governments. Making a claim that even one bubble, much less "most" bubbles are caused by retail, is an outrageous claim which requires extraordinary evidence that you would need to provide.

ashtonkem 5y ago

Perhaps. Unlike in 2008 though, those buyers aren’t typically hoping to sell those houses for a short term profit, most of those investors are hoping to turn them into rent income. This could easily distort prices, and have pernicious social effects, but might not be an asset bubble. After all, if those investors manage to actually charge enough rent to make a profit, is the asset really over priced then?