First home buyers are squeezed by investors and companies

CHARLOTTE, NC – During her first meetings with clients, many of whom are hoping to buy their first home, Sarah Ortiz Hilton goes through a list of warnings.

They may have to bid tens of thousands of dollars above the asking price to get those offers turned down, says Ms. Hilton, a real estate agent. They may have to pay thousands of dollars in non-refundable fees to get a seller to consider their offer. And if they’re looking for a home for less than $300,000, they may be out of luck.

Her cautionary message reflects in part the red-hot housing market, rising interest rates and limited supply across the country. But especially in booming Sun Belt markets like Charlotte, it also reflects something else: the increasing influence of real estate investors buying up homes, especially at the lower end of the market, and converting them into rental properties.

In cities like Charlotte, that trend is exacerbating the shortage of homes for sale, driving up prices and making home ownership out of reach for many first-time buyers, the biggest losers in today’s market.

About 2.5 million first-home buyers will be banned from the market this year, estimates Nadia Evangelou, senior economist at the National Association of Realtors. That is 15 percent of all first-time buyers on the housing market. In an already discouraging market, investor purchase adds the hurdles.

“The more investors buy up entire communities and turn them into rental communities — people don’t have a choice anymore,” said Ms. Hilton, who moved from New York to Charlotte in 2007, lured by the opportunity to buy a home in an affordable market. “They can’t afford to buy more, or there’s nothing to buy.”

A map compiled by Mecklenburg County, including Charlotte, shows a sea of ​​dots indicating company ownership throughout the area; the exception is a pie slice-shaped segment extending from downtown Charlotte — the historically whiter, wealthier neighborhoods often referred to as “the wedge.” More than 93 percent of homes purchased by businesses in May 2021 were purchased for less than $300,000. Many of them were in predominantly black neighborhoods.

Nationally, large investment companies remain a small portion of US home buyers.

“It’s really hard to argue that a handful of companies that own 300,000 homes across the country really have the ability to influence things like home prices and rental rates,” said David Howard, executive director of the National Rental Home Council, which represents the National Rental Home Council. single-family rental sector.

But their share is growing: Real estate investors bought a record 18.4 percent of homes sold in the United States in the fourth quarter of 2021, up from 12.6 percent a year earlier, according to real estate company Redfin.

And in some markets, especially the relatively affordable Sun Belt metro areas, their share is much higher.

In Charlotte and Atlanta, investors bought more than 30 percent of homes sold in the fourth quarter of 2021, according to Redfin. In Jacksonville, Florida, Las Vegas and Phoenix, they bought just under 30 percent.

Housing industry representatives note that these numbers, which define investors as an institution or company, also represent purchases by smaller, local owners, who may own only one or two buildings through a limited liability company.

For decades, Marjorie Parker knew all of her neighbors in Charlotte’s eastern Hidden Valley neighborhood. It was not always easy to live there, as gang violence regularly raged through the streets. But Ms. Parker found solace in the strength of the community and the economically stable middle-class life that offered black families.

The first change she noticed was the flyers on her doorstep. They offered to buy her house for cash. Soon, her phone started ringing several times a day with calls offering the same thing.

She was determined to keep her home, but for many of her neighbors, some who were behind on property taxes or who struggled to maintain their properties into their senior years, the offers were a welcome escape.

When a house next door was for sale last year, young families flocked to visit her. But the house was soon sold to a rental company.

“There should be a limit on that — you can’t let a few people have all the houses,” Ms. Parker said. Where ordinary citizens can’t buy a house is a sad day in America.”

With apartments in her neighborhood typically renting for $1,500 or more, Ms. Parker and other longtime homeowners worry that the property tax hike will drive out even more residents.

And there are also problems for tenants. Several studies have shown that corporate landlords are more likely to raise rents, evict their tenants and maintain their properties poorly than smaller landlords. A 2018 Department of Housing and Urban Development study found that owners of large Atlanta businesses were 68 percent more likely than smaller owners to file eviction notices.

Faced with a steady rise of corporate buyers, some neighborhoods are fighting to turn them away.

Just north of Mrs. Parker’s neighborhood, residents of the Avalon urban housing community in Mallard Creek watched as businesses quickly grabbed homes for sale and converted them into rental properties. Last year, more than 40 percent of the homes there were occupied by tenants, according to Keri Miller, the treasurer of the homeowners association.

The association, frustrated with what it said was the poor maintenance of tenant-occupied homes, voted on a rental amendment that would require anyone buying a home in the community to live in the unit for at least a year before renting it out.

The amendment passed and by February the percentage of renters had fallen by 10 percent, Ms Miller said.

Industry officials have criticized these efforts as discriminating against tenants.

“Why should a young family who for whatever reason is unable to buy a home be prevented from living in a neighborhood that is close to schools, jobs and other neighborhood amenities?” said Mr. Howard.

The demand for rental housing is high and “the companies are coming in and trying to meet that demand,” he said. He added that companies are also tackling the supply shortage by building new rental housing communities.

But critics say that renting a single-family home offers far fewer opportunities for long-term stability and wealth building than owning a home. And the typical starting rent of about $1,500 in the area hardly helps meet the needs of lower-end renters.

Jameisha Wilkes spent months looking for a home that would keep her close to her daughter’s autism therapy, her job at a food warehouse, and her mother’s house in the same subsection.

Signs for sale appeared outside the modest houses in her subdivision in the northeastern suburbs of Charlotte. With the help of a down payment and financing program for a mortgage of up to $180,000, she thought she might have a shot at it.

But when she searched for the homes in Zillow, she was shocked to find that many homes in her neighborhood were selling for more than $300,000, double what some had sold about five years earlier. Every now and then she would find something in another neighborhood closer to her price range, but it would soon be gone.

“If there’s a house that’s affordable, it’ll be gone within 24 hours,” says Ms. Wilkes. “I usually don’t even make it to the open house until there’s already an offer.”

Now Mrs. Wilkes is busy packing her things, but not moving into her own house. After her landlord, Tricon Residential, who now owns more than 1,600 single-family homes in Mecklenburg County, offered to renew her lease for an additional $150 a month, she decided to move with her daughter into a small one-bedroom apartment nearby while she saves money to buy.

Local officials are exploring ways to give people like Ms Wilkes a chance at home ownership, such as buying land and offering it for below market value, and creating legislation to erect barriers to corporate ownership. But no specific policy has been proposed.

Efforts to contain the spread of corporate home ownership have also been slow at the federal level. Since Senators Elizabeth Warren of Massachusetts, Sherrod Brown of Ohio and others Senators Elizabeth Warren of Massachusetts, Sherrod Brown of Ohio and others in October.

Meanwhile, many homebuyers feel like their last hope is a windfall.

On her route as a mailman, Ashlee Floyd took pictures of for-sale signs to look for the offers during intermissions, only to find one after the other that was outside her $300,000 budget. Offers she made on five houses were rejected.

Ms. Floyd skimped on a higher down payment — cutting back on Christmas gifts and extracurricular activities for her two children — and worked as much overtime as she could, often working 65-hour weeks.

Two years after she began her search, she found a home she could afford in a quiet northwest Charlotte neighborhood and an owner who was determined to sell to a family, not a business. Last week she closed and paid $292,000, $27,000 above the asking price.

“It’s over, the nightmare is over,” said Mrs Floyd. “We just have a foundation now. This is where we are going to plant our seed and grow from here. That’s how it feels.”

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