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Housing investors are slowly inching back into Austin while selling off in L.A.

Investors are stepping back from these high-cost markets, finds Parcl Labs.

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Parcl Labs, a fast-growing residential real estate analytics firm, continuously examines single-family home sales across the nation to uncover the markets witnessing a surge in investor activity and those from which investors are retreating. Parcl Labs' analysis produces a metric they call the "Investor Purchase to Sale Ratio," which is designed to quantify investor participation in the largest housing markets across the nation.

Here's how to interpret the “Investor Purchase to Sale Ratio”, according to Jason Lewris, co-founder of Parcl Labs: “A 1.00 here would represent for every investor [home] purchase, there was 1 investor [home] sale, so 1:1 harmony. Anything above 1.00 would indicate investors are purchasing more units than selling and under 1.00 would be the inverse.”

This updated analysis is through January 2024.

Click here to view an interactive version of the chart below

In the wake of the ongoing mortgage rate shock, investors have altered their strategies since 2021, leading to marked shifts in regional housing markets.

On an aggregate basis, investors are pulling back in housing markets such as San Francisco, San Jose, Riverside, San Diego, and Los Angeles, according to Parcl Labs. It’s hard to find positive cash flow in these pricey markets right now.

While on an aggregate basis, investors are buying up more than they are selling in housing markets like Indianapolis, Philadelphia, Denver, Milwaukee, St. Louis, and Columbus, Ohio, according to Parcl Labs. Depending on the property type and area, there’s still positive cash flow to be found in these markets.

Among regional housing markets, Austin, which got bubbly during the Pandemic Housing Boom, was hit the hardest by the mortgage rate shock. Depending on which index you consult, home prices in the Austin metro area have decreased by somewhere between -14.5% (according to the Freddie Mac House Price Index) and -20.4% (according to the Zillow Home Value Index) from the peak in 2022. However, the Austin market might be showing signs of stabilization. A noteworthy indicator is the data from Parcl Labs, which reveals that investor purchases in Austin have outnumbered investor sales every month since September 2023.

Big picture: Unless mortgage rates pull back sharply, the investor side of the housing market (especially on the institutional side) will likely remain constrained in 2024, even more so in high-priced West Coast markets.

Last week, the National Association of REALTORS (NAR) reached an agreed settlement in the commission lawsuit. The proposed settlement, which is still subject to court approval, involves a payment of $418 million in damages and amendments to several rules. According to NAR, as part of the agreement, “NAR has agreed to put in place a new MLS rule prohibiting offers of broker compensation on the MLS.”

To better understand how this could impact the residential real estate industry heading forward, ResiClub is running a series of opinions from insiders across the industry. (Sharing the commentary doesn't mean ResiClub endorses the commentary).

Today: Robert Hahn, managing partner of 7DS Associates, a Las Vegas-based real estate consulting firm. Since 2009 Hahn has written the blog Notorious R.O.B., which examines the residential real estate industry.

“The Settlement will have zero impact on the industry. Compensation is preserved, steering remains alive and kicking, and once agents figure out their ideas of the buyer agency agreement will not fly and that using the Concessions field for compensation is a losing proposition, they'll just go back to offering compensation and steering buyers away from less-than-customary homes. They'll just do it off-MLS. As Marlo Stanfield said, "You want it one way, but it's the other way." Human nature is what it is. Agents hate change. They will take the path of least resistance, of the least change. So by the time July rolls around, nothing much changes. Sure, massive upheaval in the underlying infrastructure of the industry: MLS, NAR, REALTOR Associations, etc. etc. are all going to be massively disrupted. But commissions? Home prices? Number of agents? Zillow profitability? Homes.com viability? Nothing changes. Nada. Zip. Zilch,” Hahn told ResiClub.

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