June 2016 H OUSING N EWS R EPORT
to an influx of home purchases by Wall Street hedge funds and private equity firms in late 2012 and early 2013 as a major driver of the frenzied market at that time. Those firms were primarily purchasing homes as rental properties, but have since been priced out of the market as rising prices have squeezed potential rental returns, or cap rates. “They were looking at 10 (percent) cap rates, but they actually were getting more like 7 (percent) cap rates because expenses were higher than they thought,” said Wright, whose focus is working with real estate investors. RealtyTrac data shows nearly 15 percent of all single family home and condo sales in Sacramento County were sold to institutional investors — defined as those purchasing at least 10 properties in a calendar year — at the peak in Q4 2012. The institutional investor share of purchases remained above 10 percent for the first half of 2013, but has steadily declined since then, dropping below 1 percent of all home purchases in the first quarter of 2016.
“They are not a force in the market anymore,” said Ryan Lundquist, a local property appraiser, of the institutional investors. “They are still buying, but it’s been a drop in the bucket. Nothing that’s really swaying the market.” But Lundquist said inventory is remaining tight in part because those Wall Street and private equity firms are holding on to the rental inventory they purchased three years ago. “The thousand that Blackstone bought are not hitting the market,” said Lundquist, who has been in business for 13 years and writes the popular Sacramento Appraisal Blog. Still, if Blackstone and other institutional investors decide at some point to liquidate their inventory quickly, it could create a drag on the Sacramento housing market, according to John P. Acord, broker/owner at Arda Realty. “When do these investors want to start cashing in and start taking their money to
John P. Acord Broker/Owner Arda Realty Granite Bay, California “ When do these (institutional) investors want to start cashing in and start taking their money to another opportunity? And if that becomes a reality, we could have a shock because we would have an influx of inventory. ”
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