Home Builders Are Taking a New Approach To Excess Inventory: Targeting Investors
With mortgage rates on the rise, the housing market has significantly slowed in the past few months, and now home builders across the country are faced with the problem of having too many homes and not enough buyers.
Bruce McNeilage, a co-founder of rental-home investment company Kinloch Partners, told the outlet that he’s received offers from home builders to buy thousands of completed houses with discounts of up to 20% off what they would charge individual buyers.
“We are being cold-called by builders we don’t even know,” McNeilage told The Wall Street Journal. “They’re saying, ‘Nobody is going to qualify for financing. We’re going to suck wind on this. Let’s contact investors and see if they want an entire subdivision.'”
The urgency comes as more buyers back out of contracts and the housing market cools across the country. September was the worst month for new construction buyer traffic since 2012, according to the NAHB/Wells Fargo Housing Market Index.
However, the market for viable investors to purchase homes — even in discounted bulk — might also be slim. In July, only 2% of total investor home purchases were new homes, according to Rick Palacios, a researcher at John Burns Real Estate Consulting LLC. In 2020, that number was around 6%.
Still, the opportunity to purchase homes in bulk is an attractive proposition to some investors, especially those hoping that prices will just continue to drop.
“The scarier things get, the more attractive this becomes,” Adam Stern, founder of single-family rental brokerage Strata SFR, told The Wall Street Journal.
Reducing inventory by selling to investors in bulk, however, reduces the inventory of available homes to traditional prospective buyers. Still, the transactions with investors could protect current homeowners by preventing prices from dropping more than they would otherwise.