Impact of Investors in Distressed Housing Markets

  • Marcus T. Allen
  • Jessica Rutherford
  • Ronald Rutherford
  • Abdullah Yavas
Article

Abstract

We examine a recent trend in the market where investors purchase residential properties. We find that investors purchase at a discount of 9.5% compared to individuals purchasing in the same time period and geographic area. More specifically, we find that small investors purchase at a discount of 8.0%, medium investors purchase at a discount of 11.1%, large investors purchase at a discount of 13.6%, and institutional investors purchase at a discount of 7.7%. We also find that the presence of investor buyers in a market helps improve house values. A 10% increase in the percentage of houses purchased by investors in a census block leads to a 0.20% increase in house prices.

Keywords

Investors Distressed markets Housing prices Externalities 

References

  1. Asabere, P., Huffman, F., & Mehdian, S. (1992). The price effects of cash versus mortgage transactions. Journal of the American Real Estate and Urban Economics Association, 20(1), 141–150.CrossRefGoogle Scholar
  2. Bayer, P., Geissler C., Mangum K., & Roberts J.W. (2015). Speculators and middlemen: The strategy and performance of Investors in the Housing Market. NBER working paper 16784.Google Scholar
  3. Bracke, P. (2016). How much do Investors pay for houses? Working paper, Bank of England.Google Scholar
  4. Camargo, B., K. Kim & B. Lester (2014). Price discovery and interventions in frozen markets. Working Paper,Google Scholar
  5. Campbell, J. Y., Giglio, S., & Pathak, P. (2011). Forced sales and house prices. American Economic Review, 101(5), 2108–2131.CrossRefGoogle Scholar
  6. Case, K. E., Quigley, J. M., & Shiller, R. J. (2005). Comparing wealth effects: The stock market versus the housing market. Advances in Macroeconomics, 5(1), 1–32.CrossRefGoogle Scholar
  7. Cespa, G., & Foucault, T. (2014). Illiquidity contagion and liquidity crashes. Review of Financial Studies, 27, 1615–1660.CrossRefGoogle Scholar
  8. Chinco, A. & C. Mayer (2014). Misinformed speculators and mispricing in the housing market. Mimeo.CrossRefGoogle Scholar
  9. Galbraith, J. K. (1952). American capitalism: The concept of countervailing power. Boston: Houghton Mifflin.Google Scholar
  10. Galbraith, J. K. (1954). Countervailing Power. American Economic Review, 44, 1–6.Google Scholar
  11. Gay, S. (2015). Investors effect on household real estate affordability. Working Paper, University of Chicago.Google Scholar
  12. Gerardi, K., E. Rosenblatt, P.S. Willen & V. Yao. (2012). Foreclosure externalities: Some new evidence, NBER working paper 18353.CrossRefGoogle Scholar
  13. Ghent, A. C., & Owyang, M. T. (2010). Is housing the Business cycle? Evidence from U.S. Cities, Journal of Urban Economics, 67(3), 336–351.CrossRefGoogle Scholar
  14. Gittelsohn, J. (2012). Private equity has too much money to spend on homes. Bloomberg. http://www.bloomberg.com/news/2012-06-13/private-equity-has-too-much- money-to-spend-on-homesmortgages.html.
  15. Green, R. K. (1997). Follow the leader: How changes in residential and non-residential investment predict changes in GDP. Real Estate Economics, 25(2), 253–270.CrossRefGoogle Scholar
  16. Hansz, J. A. & Hayunga K. (2014). Cash financing in residential real property transaction prices, working paper.Google Scholar
  17. Houghwout, A., D. Lee, J. Tracy & W. van der Klaauw (2011). Real estate investors, the leverage cycle, and the housing market crisis. Federal Reserve Bank of New York Staff Report 514.Google Scholar
  18. Ikromov, N., & Yavas, A. (2012a). Asset characteristics and boom and bust periods: An experimental study. Real Estate Economics, 40, 603–636.CrossRefGoogle Scholar
  19. Ikromov, N., & Yavas, A. (2012b). Cash flow volatility, prices and price volatility: An experimental study. The Journal of Real Estate Finance and Economics, 44(1–2), 203–229.CrossRefGoogle Scholar
  20. Kurlat, P. & Stroebel J. (2015). Testing for Informational Asymmetries in Real Estate Markets. Review of Financial Studies, forthcoming.Google Scholar
  21. Kurth, R. (2012). Single-family rental housing: The fastest growing component of the rental market (data note). Economic and Strategic Research, 2(1), 1–5. Fannie Mae.Google Scholar
  22. Kydland, F. E., Rupert, P., & Sustek, R. (2014). Housing dynamics over the Business cycle: An international perspective. Working: Paper.Google Scholar
  23. Lambson, V., McQueen, G., & Slade, B. (2004). Do out-of-state buyers pay more for real estate? An examination of anchoring-induced bias and search costs. Real Estate Economics, 32(1), 86–126.CrossRefGoogle Scholar
  24. Lancaster, T. (1990). The econometric analysis of transition data. New York: Cambridge University Press.Google Scholar
  25. Leamer, E. E. (2007). Housing is the Business cycle. NBER working paper no. 13428.Google Scholar
  26. Levitt, S. D., & Syverson, C. (2008). Market distortions when agents are better Informed: The Value of Information in Real Estate Transactions. Review of Economics and Statistics, 90, 599–611.CrossRefGoogle Scholar
  27. Li, L. (2014). Why are foreclosures contagious? Mimeo.Google Scholar
  28. Lusht, K., & Hansz, J. A. (1994). Some further evidence on the price of mortgage contingency clauses. Journal of Real Estate Research, 9(2), 213–217.Google Scholar
  29. Mills, J., R. Molloy, & R. Zarutskie (2017). Large-scale buy-to-rent Investors in the Single- Family-Housing Market: The emergence of a new asset class? Real Estate Economics Forthcoming.Google Scholar
  30. Molloy, R. & Zarutskie R. (2013). Business investor activity in the single-family-housing market, FEDS Notes 2013–12-05. Board of Governors of the Federal Reserve System (U.S.).Google Scholar
  31. Rahmani, J., B. George, & R. O’Steen (2013). Single-family REO: An emerging asset class (3rd edition). North America equity Research: Mortgage Finance industry update (September 10). Keefe, Buryette and Woods.Google Scholar
  32. Rahmani, J., B. George, R. Tomasello (2014). Securitization of single-family rentals. North America equity Research: Mortgage Finance industry update (January 14). Keefe, Bruyette and Woods.Google Scholar
  33. Rutherford, R. C., Springer, T. M., & Yavas, A. (2005). Conflicts between principals and agents: Evidence from residential brokerage. Journal of Financial Economics, 76, 627–665.CrossRefGoogle Scholar
  34. Schnure, C. (2014). Single-family rentals: Demographic, structural and financial forces driving the new Business. Mimeo: Model.Google Scholar
  35. von Ungern-Sternberg, T. (1996). Countervailing power revisited. International Journal of Industrial Organization, 14, 507–520.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  • Marcus T. Allen
    • 1
  • Jessica Rutherford
    • 2
  • Ronald Rutherford
    • 3
  • Abdullah Yavas
    • 4
  1. 1.Alico Eminent Scholar, Department of Economics & Finance, Lutgert College of BusinessFlorida Gulf Coast UniversityFort MyersUSA
  2. 2.Department of FinanceUniversity of South FloridaTampaUSA
  3. 3.Bank of America Endowed Professorship, College of Business, Finance Department, University of South FloridaUniversity of South FloridaTampaUSA
  4. 4.Robert E Wangard Chair, School of BusinessUniversity of Wisconsin – MadisonMadisonUSA

Personalised recommendations