Wall Street Investors have officially abandoned the Housing Market.
With Redfin reporting a colossal 49% crash in investor purchases in Q1 2023.
This is the biggest annual decline on record.
Even bigger than the drop that occurred in 2005 right before the last crash. pic.twitter.com/9GyHqzHCKl
— Nick Gerli (@nickgerli1) May 31, 2023
2) Higher interest rates have nuked investor housing demand.
With mortgage rates (6.9%) now trading way above cap rates (4.6%).
Indicating that Wall Street investors are guaranteed to lose money on their rental after paying debt service.
Thus – they have stopped buying. pic.twitter.com/AWpwNwJpFK
— Nick Gerli (@nickgerli1) May 31, 2023
4) And this MBS Market has completely collapsed.
With Wall Street landlords only managing to raise $0.6 Billion so far in 2023.
That compares to $17 Billion in 2021.
So quite literally – the capital is longer there for Wall Street to go and buy houses. pic.twitter.com/ix2NB1gcFR
— Nick Gerli (@nickgerli1) May 31, 2023
6) Now – investors aren't pulling out of all markets. In a market like Cleveland investor buying didn't drop as much.
Why? Because a market like Cleveland offers investors higher returns.
The Cap Rate in Cleveland is 6.2%, much higher than 4.6% US Average. pic.twitter.com/0Ks7oNdkBs
— Nick Gerli (@nickgerli1) May 31, 2023
8) Ultimately it's going to be low cap rate / profit markets (Phoenix, Denver, LA, Austin) where prices go down the most.
Whereas cities with higher cap rates will perform better (e.g., Cleveland).
Since investors still have an incentive to buy even at higher interest rates.
— Nick Gerli (@nickgerli1) May 31, 2023
10) What many people forget is that Housing Downturns take time to play out.
They're often a 4-5 year process.
And we're just now exiting Year 1 of the current downturn.
There's a long way down before prices/rates fall enough to bring investors to get back in.
— Nick Gerli (@nickgerli1) May 31, 2023
12) Additionally – if you want to see more of my analysis, check out my post on the Reventure App blog.t.co/RwAxafNCln
— Nick Gerli (@nickgerli1) May 31, 2023
2/5… collapsed from 80.128K homes in 1Q22 to 41.181K homes in 1Q23. In fact, the decline seen in 1Q23 of -49% was BIGGER than that seen in 2005, right ahead of the last crash (DON'T KILL THE MESSENGER). So… where are investors pulling out? Well, the markets that saw the… pic.twitter.com/V2OkbzPDha
— Gordon Johnson (@GordonJohnson19) June 1, 2023
4/5… are the ones seeing the MOST weakness. Furthermore, with mortgage rates (7%) now COMFORTABLY above cap rates (5%), suggesting investors are virtually guaranteed to lose $ on any rental after paying interest on debt, investor demand (i.e., 17.6% of homes… pic.twitter.com/x8y0devFe0
— Gordon Johnson (@GordonJohnson19) June 1, 2023
5/5… purchased) is likely set to continue WANING. Conclusion? This is yet ANOTHER cog in the thesis for those fearful of a housing collapse. Stated differently, the NUMBERS DON'T LIE. pic.twitter.com/K9cPFKXeSk
— Gordon Johnson (@GordonJohnson19) June 1, 2023
Real Estate Pros Don’t Want You To Know What’s Going On