Home investors find out what happens when interest rates rise

Print Friendly, PDF & Email

BACK TO REALITY: Funny things sure can happen when interest rates stop being rigged:


“With the easy money gone, investors are retreating from the US housing market at record speed.

“Investors bought nearly 49% fewer homes in the first quarter compared to a year earlier, with higher interest rates, softening rents and declining values cutting into their ability to make money, according to a report from Redfin. That’s the biggest annual decline in data going back to the first quarter of 2000 and was larger than the nearly 41% drop in overall purchases, according to the brokerage.

“The pandemic boom, fueled in part by low mortgage rates, drew in investors of all sizes and types, from single-family flippers to institutional behemoths. But the math became more complicated as the Federal Reserve drove up borrowing costs to ease inflation, a particularly bad recipe for investors who were benefiting from rising home values.” [Emphasis added.]

Who could have expected? I’m even willing to believe—and evidence to the contrary would be most welcome—that the whole institutional single-family-home investment business isn’t really a business at all, but rather malinvestment on a grand scale that began at the end of the 2008 credit crunch when institutional bargain-hunters swooped in to buy foreclosed homes at deep discounts, turned them into rentals, and decided not to flip them after prices recovered because, thanks to persistently low interest rates, there was no attractive reinvestment option. Anyway, higher carrying costs and lower asset values now isn’t exactly a recipe for success.