The dream of owning a home is becoming increasingly difficult for many Americans as hedge funds and investment groups outbid traditional homebuyers by tens of thousands of dollars. This trend is exacerbating the already tight housing market, making it particularly challenging for first-time buyers and those relying on mortgages.
Nathan Saunders, a homebuyer from Dallas, has experienced firsthand the challenges of competing against investment groups. "My wife and I have been looking for a house for roughly the past year," he said. "On each of those, we had contractors or investment groups outbidding us on the properties."
Housing experts note that these investment groups come armed with financial resources that ordinary Americans can't match. "Historically, the vast majority of these investors have been mom-and-pop landlords, but after the 2008 bust, we saw institutional investors and other funds enter this market" said Karan Kaul, senior research associate for the Housing Finance Policy Center at the Urban Institute.
David M. Dworkin, president and CEO of the National Housing Conference, highlighted the impact on first-time homebuyers. "Cash offers typically make up about 25 percent of the market, but over the past year, the proportion soared to nearly 1 in 3," he said. "This is having its worst impact on first-time homebuyers, who generally are more dependent on mortgage financing and have limited budgets."
Kaul pointed out that the competition from investment entities is a symptom of a much bigger problem in the housing market. "The reason why we have this supply crisis right now goes well beyond investors. We just haven't produced enough housing in the past 10 years," he said.
The supply crunch is unlikely to ease soon. Although housing starts rose more than expected in June, building permits — which foreshadow starts — fell by about 5 percent, a steeper drop than anticipated.
In areas where big tech companies have expanded, the influx of workers from pricier enclaves is straining the availability of inventory. Jami Mumley, a Realtor with North Texas Top Team Realtors, noted that people are also competing against individuals moving from more expensive markets, who can often pay cash for a house.
Marcos Cartagena, a resident of the Phoenix Arizona area, expressed concerns about the rising number of investor-owned rental properties. "All these old neighbors are dying off or going to homes. Their children aren't here in the state anymore, and they sell the house for top dollar," he said. "They sell to investors. They don't sell to people looking to live there."
Despite the challenges, some homebuyers find success by appealing to a sense of neighborhood cohesion. Saunders and his family finally had their offer accepted after writing a letter to the sellers, detailing their dream of settling in and renovating the house. "It was shocking to hear our offer was finally accepted," he said.
Saunders believes the seller was willing to take less money because his family was looking to put down roots, not drive returns. "I do believe that kind of has something to do with it," he said.