Nearly a third of all homes sold in Texas last year went to a company or corporation that paid in cash, according to a report from the National Association of Realtors.
Texas had the highest rate in the U.S. – 28 percent – of homes sold to companies and corporations, otherwise known as institutional investors. That’s more than double the national average of 13 percent. Tarrant, Rockwall and Midland counties saw some of the largest shares of investors.
Investors are being driven by Texas’ growing population and appeal. But there are concerns about how this may impact first-time home buyers who are unable to compete with investors paying in cash.
Nadia Evangelou, a senior economist and the director of forecasting for the National Association of Realtors, spoke with the Texas Standard about what this means for Texans. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: What is an institutional investor?
Nadia Evangelou: These are buyers from Wall Street, a hedge fund or someone outside of the scope of a traditional buyer. So, these are not mom-and-pop investors. They buy homes and communities on a large scale and look to make a profit from them by turning them back to rental properties. So, for our study, we included corporations, companies or LLCs (limited liability companies).
Why are they turning to Texas? What’s happening?
According to our recent study, Texas is the state with the most home purchases by institutional buyers. As you mentioned, it’s about 30 percent of the home purchases statewide that were made by institutional buyers. But the question is why? And to put it simply, it’s because Texas meets all the criteria of an investor’s checklist. Our study shows that institutional buyers tend to purchase homes in areas that have fast-growing household formation with larger millennial renter and minority populations. Institutional buyers also invest in popular areas that attract new residents.
But then we also see that although both rents and prices for homes for sale are rising quickly, housing is still affordable in the areas where institutional buyers purchase homes. Texas offers all these to investors. First and foremost, Texas is one of the top three states with the fastest-growing population. In the last decade, we have seen the population rise by about 16 percent. And while demographics in real estate vary by area, institutional investors focus on some specific areas in Texas.
Are there any deep geographic areas that seem to be red-hot right now for institutional investors?
Tarrant and Dallas counties in the Dallas metro area and Bexar County in San Antonio are some of the areas that attract more investors. We’ve seen in these counties that the share of institutional investors is about 43 percent. In Tarrant County, for example, more than half of the homes purchased in 2021 were made by institutional buyers.
How is this affecting competition for other prospective buyers looking to get into this housing market?
Regarding the main impact of institutional investors, what we see from our analysis is that they increase market competition. Institutional investors seem to be taking a significant portion of homes that would otherwise be sold to first-time and lower-income buyers. While many of those institutional buyers offer all cash, as you mentioned already, first-time homebuyers in these areas face even more competition. With these buyers offering all cash, first-time buyers cannot compete. But we have to think that they don’t have the equity that other homeowners have. So, it’s very hard to compete for first-time buyers.