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Investors buy greater share of homes in third quarter

Rental homeHome sales to institutional investors, which have been falling since mid-2013, rose both quarterly and annually in the Charlotte metropolitan statistical area in the third quarter, resulting in Charlotte being the second-most active market for such sales, according to statistics released by RealtyTrac.

In the third quarter, 14.2 percent of Charlotte area home sales were to institutional investors, defined as entities that buy at least 10 properties in a calendar year. That was up from 11.6 percent in the second quarter and 13.4 percent in the third quarter of 2013.

Among areas with populations greater than 500,000, only Memphis, Tenn., – which includes northwest Mississippi and eastern Arkansas – had a greater share of institutional investor purchases, at 16.4 percent, but that was down from last year’s 20.3 percent. Only six of the 101 metropolitan areas represented in the report had a double-digit share of investor sales.

Much of the increase in the Charlotte area was in Gaston County, where institutional investors accounted for 18.4 percent of all home purchases in the third quarter, up from 12.1 percent the previous quarter and 17.8 percent in third quarter 2013.

In Mecklenburg County, sales to institutional investors were down to 12.5 percent of all homes sold from 16.9 percent in the second quarter and 19.9 percent in third quarter 2013.

“Charlotte’s a prime market for buying single-family homes as rentals at scale for several reasons,” said RealtyTrac Vice President Daren Blomquist in an email. “First, it is a good-sized market with lots of property (potential rentals) and people… Secondly, the price point of homes in Charlotte until recently was below the $150,000 threshold that these institutional investors like to buy at. We show the median sales price in April of this year was at $150,000. Since then it has shot up to $175,000, in part because of the influx of these investors, but it is still relatively low-priced compared to other markets, even with that increase. Thirdly, there are a lot of millennials moving to the Charlotte area, particularly Mecklenburg County.”

According to RealtyTrac figures, the millennial population increased 32.29 percent from 2007 to 2013, when it made up 26.8 percent of the total population. Millennials are those born between 1977 and 1992. By comparison, the number of millennials decreased 13.82 percent during that time in Union County.

“These millennials are likely to be renters first before they become homeowners, if they ever become homeowners,” said Blomquist.

“Lastly, the average rental rates and vacancy rates in the area are favorable, generating annual returns of between 6 percent and 11 percent.”

Returns in Gaston County were the greatest, at 11.44 percent. Those in Union County were the lowest, at 6.12 percent.

According to RealtyTrac figures, 42 percent of Mecklenburg County’s homes were renter-occupied, and the vacancy rate was 6.6 percent.

Institutional investors, including Blackstone’s Invitation Homes, Tricon Capital Group and American Homes 4 Rent, have bought several thousand homes in the Charlotte area over the last few years.

In 2001, less than 1 percent of all home sales nationally were to such groups.

In the 3rd quarter, those investors bought 4.3 percent of the homes sold in the U.S., down from 5.0 percent in the second quarter and 5.3 percent a year ago, to the lowest level since fourth quarter 2010. They peaked at more than 6 percent in the first half of 2013.

Activity in North Carolina was greater than the U.S. average, at 6.7 percent in the third quarter, up from 6.2 percent in the second; and 8.5 percent.

In California, where activity has been decreasing, “Institutional investors, who flooded the market a couple of years ago, are starting to sell their inventory for substantial gains,” said Chris Pollinger, senior vice president of sales at First Team Real Estate, covering the Southern California market, in RealtyTrac’s report. “Meanwhile, first-time buyers are still underrepresented because of affordability challenges in the Southern California marketplace.”

Along with sales to institutional investors, all-cash sales have risen since 2001, peaking at more than 45 percent of all sales in 2012. Those have declined as well, to 33.9 percent in the third quarter, down from 36.9 in the second but flat from a year ago.

In the Charlotte area, cash sales were virtually flat: 36.8 percent of all sales were for cash in the third quarter, down 0.1 percentage point from 36.9 percent in the second quarter and last year.

In North Carolina, 37.8 percent of homes sold were for cash in the third quarter, down from 38.3 percent in the second and 39.9 percent a year ago.

The share of homes sold for cash ranged from 15.2 percent in Buffalo-Niagara Falls, N.Y., area to 59.1 percent in Miami-Fort Lauderdale-Pompano Beach, Fla.

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