Last Year, US Residential Rental Companies' Home Purchases Plummeted 30%... "Slump Continues This Year"

High Housing Prices and High Interest Rates
Soaring Rent Increases Slow Down
Interest Rate Cuts Expected This Year but Limited
Housing Prices Forecasted to Rise Again This Year

Last year, the number of homes purchased by rental housing companies in the United States decreased by nearly 30%. This was due to the combined effects of high home prices, rising interest rates, and a slowdown in soaring rental rates. Experts predict that the real estate market will continue to face challenges this year, even with the anticipated interest rate cuts.

On the 23rd (local time), The Wall Street Journal (WSJ), citing data from real estate data analytics firm Parklab, reported that the total number of homes acquired by rental housing companies in 2023 was 570,000, a 28.8% decrease compared to the previous year (800,000). Notably, the number of homes acquired in the fourth quarter of last year was 120,000, the lowest figure for the same quarter in the past eight years. Realtor.com forecasted that real estate investment firms' home purchasing activity for last year (up to September) would show the largest annual decline in 20 years.

This decline is attributed to the continuous rise in mortgage rates caused by the Federal Reserve's interest rate hikes over two years starting in 2022. The 30-year mortgage rate reached 7.8% in October last year, the highest since the late 2000s. Considering that it was around 3-4% before the COVID-19 pandemic in 2019, this represents nearly a twofold increase.

On the other hand, rental rates, which had sharply increased after COVID-19, have decreased. According to real estate brokerage Redfin, as of November last year, the average monthly rent for U.S. homes was $1,967, a 2.1% decrease compared to the same period the previous year. This is the largest annual decline since February 2020.

While the cost of purchasing homes has significantly increased due to high interest rates, the profitability of rental businesses has weakened. For example, real estate investment trust company Winbrook Homes recorded a net loss of $214 million up to September last year. The company also announced plans in November of the same year to sell up to 2,100 homes to cover interest expenses.

Some expect the real estate market to revive as interest rate cuts are anticipated this year, but real estate experts predict the impact will be limited. According to a recent survey by U.S. lending company RCN Capital, 82% of small rental housing companies owning fewer than 10 homes responded that their plans to purchase rental properties this year would be "the same or less than in 2023." This is because, although rents are falling, they remain higher than pre-COVID-19 levels, leading to expected lower tenant demand, and interest rates are expected to remain relatively high.

Many forecasts suggest that the soaring home prices will continue to rise this year. Global real estate analytics firm CoreLogic projects that home prices will increase by 2.5% compared to the previous year through November. Christopher Mayer, a professor of real estate at Columbia Business School (MBA), pointed out, "By any measure, today's home prices are extremely expensive."