Currently, home equity in the United States (only including homes with mortgages) amounts to $10 trillion; this is the net result of soaring housing prices. Unfortunately, millions of people have also fallen behind on their mortgage payments as a result of COVID. If we see another 2008-esque surge in foreclosure sales, rental-home investors will have an excellent opportunity to increase their holdings. Even if we don’t see foreclosures, economic conditions may force homeowners to sell their homes at a low price, which also means many homeowners may be forced to become renters themselves.
In reality, many people have significant equity in their homes, but not enough liquid assets to pay their bills; this will encourage homeowners to liquidate by selling property; or they may be foreclosed on in the near future. While foreclosures are not happening now, many homeowners are in forbearance (7% as of September 6, 2020)– they will need to pay a significant amount of money once their forbearance period expires; given that the economy doesn’t seem to be picking up in a meaningful way for most Americans, it’s likely many people will not be able to make their payments when it comes due. We’re already seeing major bidding wars in suburban communities.
Many of the purchasers are comprised of investors, who formed rental companies several decades ago, to purchase foreclosed homes by the thousands. These companies are doing very well in the current market; the two largest entities Invitation Homes, Inc. and American Homes 4 Rent have seen their stocks increase by 79% and 59% respectively since March 23, 2020; investors have purchased nearly $900 million in shares since then as well.
American Homes 4 Rent has nearly doubled their May 2020 inventory of 53,000 homes, and they are still going strong. These investment companies are making gratuitous use of sale-leaseback provisions, which allows the seller to liquidate their home equity, and rent the property from the new buyer (which is very convenient for a company who is purchasing homes to rent out to people). Unless something drastic occurs within the market, rental homes are likely to be a very profitable endeavor in 2021.
At the Chernov Team we understand that knowledge is power, and knowledge of how the market is behaving is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.