Institutional buyers slow purchases in the Chicago region

Rising home prices in the Chicago area have slowed the purchases made by institutional investors:

But several housing markets, including Chicago’s, are considered prime places for institutional buyers to cash out if they choose, walking away with tidy profits, according to an analysis by RealtyTrac. These are the same investors that consumers have complained about because their own bids for distressed homes were beat out by the firms’ higher cash offers.

Institutional investors, defined as buyers who acquired 10 or more homes during a year, spent an average of $161,252 to acquire a home here, and that home now has an average market value of $210,126, according to RealtyTrac. That’s a gain of 30 percent. Meanwhile, the S&P/Case-Shiller home price index puts the Chicago area’s home price gain between January 2012 and this past September at 22 percent.

That rise in prices certainly has tempered large investors’ appetite to increase their holdings. In Cook County, for instance, affiliates of Blackstone Group, which operates its homes under the Invitation Homes name, acquired close to 150 homes in 2013. This year, they bought fewer than 20, according to property transfers filed with the Cook County recorder.

The question becomes at what point does the housing market normalize enough, and enough consumers opt to buy instead of rent, that profits level off and firms begin to sell those homes. In the meantime, they are settling in, learning their role as landlords and the ins and outs of taking care of properties and tenants. There have been liens filed against them by contractors seeking to get paid for work completed. There have been eviction cases filed against tenants who haven’t paid the rent. And there have been the expenses associated with homeownership.

It will be interesting to see what these institutional investors do. Will they wait to see if they can get higher prices within a relatively short time frame? Are they in it for the long haul but only with some houses or areas within the region? Can they handle large-scale maintenance and renting? I want to see more work in this area to find out the (a) long-term goals of these investors; (b) how residents and local leaders view them as time goes by; and (c) how their actions affect other players in the real estate market, particularly people at the lower end of the housing market who need a good deal in order to purchase a home.

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