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One of the nation’s largest homebuilders is working to sell thousands of homes worth billions of dollars to investors, according to a new report.
Lennar Corp. has been marketing thousands of its new homes to investors at a time when sales to traditional homeowners have slowed and the rental market remains strong, Bloomberg reported on Friday, citing unnamed people familiar with the matter.
Lennar’s marketing of thousands of homes that would likely remain rentals comes at a time when major investors are looking to capitalize on the slower housing market by sourcing deals from homebuilders to build up their portfolios.
“Homebuilders nationwide found themselves with a sudden surge of unsold inventory when mortgage rates rose suddenly, triggering cancellations as buyers could no longer afford the monthly payment,” said Brad Hunter, president of Hunter Housing Economics.
A representative from Lennar didn’t immediately respond to a request from Inman for comment on Monday. The company told Bloomberg the offering is part of its standard marketing efforts.
Builders are selling individual, scattered units and entire subdivisions and “horizontal multi-family” developments of rental homes.
Hunter expects that in the next two years, homebuilders will ramp up production of single-family rental homes to 150,000 per year and that supply still won’t meet the demand for rental housing.
The portion of single-family homes being built to rent and sold to investors represents about 12 percent of all single-family housing starts today, according to Robert Dietz, chief economist for the National Association of Home Builders. The historical average is about 3 percent, he said.
“Going from 3 percent to about 12 percent is a pretty big gain,” Dietz said. “I think that’s a reflection of the fact that housing conditions on the for-sale side of the market have declined so much.”
Investor activity has slowed slightly from 2021 but remains above historical averages, according to new data from CoreLogic. In the third quarter of 2022, investor purchases were 20 percent higher than at the same time in 2019 and 2020. The share of sales of owner-occupied properties is 30 percent less now than it was before the pandemic, according to CoreLogic.
That’s after high prices and the rapid run-up in mortgage rates put upward pressure on the rental industry, and investors are looking to build their portfolio of rentals.
Lennar is offering about 5,000 homes, largely in the South and Southeast. These are areas that have been attracting what CoreLogic calls “mega investors,” or those who own more than 1,000 homes. The firm found that mega investors were most active in markets with high price appreciation, which over the past two years has included markets across the Sun Belt.
Major investors had the ability to outcompete individual buyers when the real estate market was highly competitive due to the structure of their financing, CoreLogic found. Now that things have slowed significantly, investors will likely look for discounts.
“Although the investor-operations see this opportunity, they are also looking to buy at a discount,” Hunter said. “This discount can be magnified when the homes that were built are not the ideal size or configuration for rentals.”
In the third quarter, the average price of a Lennar home was $491,000, up from $428,000 the year before.
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