Housing Prices: How High Is Too High?

It looks as though Wall Street has given up on residential real estate. In 2021 and 2022, investor enthusiasm seemed to know no bounds. They poured billions into the area, eager to cash in on soaring rents. According to John Burns Research & Consulting, large landlords at the height of that boom bought almost 2.5% of all U.S. homes. But since, the tide has ebbed, with landlords taking a mere 0.4% of U.S. homes during this year’s second quarter, the most recent period for which complete data are available. By comparison, individual homebuyers have kept up their interest. The pace of buying has wavered from month to month as home prices and especially financing costs have risen, but any hesitation caused by cost considerations hardly compares with investors’ sudden pullback.

These fundamentally divergent trends naturally raise questions about which group is correct. Has Wall Street’s smart money issued a warning that individuals have failed to receive or do these individuals know something more than the big investors? The question is both natural and informative, but the fact is that these groups are not moving at cross purposes. Big money and individuals are playing almost entirely different games. The calculations of one have little relation to the calculations of the other, and the way it looks now, both are quite rational.