For the past two years, the housing market continued to heat up, with bidding wars for homes boosting prices. Part of the mix of prospective buyers are institutional buyers, or companies that buy the properties to lease them out or fix them up and sell them.

The National Association of Realtors dug into the impact institutional buyers are having on home sales and single-family rentals. The study estimates the market share of institutional buyers to home sales using property deed records from Black Knight (BKI) and compares the median price of institutional buyers to the median price of all buyers.

Institutional buyers made up 13.2% of the residential sales market in 2021, with the median purchase price of institutional buyers typically 26% lower than the states’ median purchase prices, the NAR said. The market share increased from 11.8% in 2020, but it’s still lower than the 15.7% share in 2014. as seen in the chart below.

As institutional investors buying existing homes takes away available stock for homeowners, the rise of construction of single-family homes specifically for the rental market adds to the rental housing stock, the study said. The NAR estimates that single-family built-for-rent housing rose to 5.2% of single-family housing starts in 2021. Built-for-rent market share increased in the South, at 5.6%, and in the West, at 4.5%, and declined in the Northeast and Midwest.

Institutional buyers tended to buy in markets with strong household formation, strong housing and rental markets, high income markets, but also with high density of minority groups, especially Black households.

“In areas with higher share of institutional investors, renters account for 30% of households on average compared to 27% in areas with lower share of institutional investors. The implication is that while institutional buyers who purchase existing-homes to convert to rental provide rental housing, this takes stock away for future homeowners,” the study said.

According to a separate survey of Realtors by the NAR, institutional buyers accounted for 15% of single-family home purchases in 2021. The major reason that homeowners sold to institutional buyers was that they offered cash. Some 42% of properties purchased by institutional buyers were converted to single-family rentals and 45% were resold. On average, though, the offer price of the institutional buyers was about the same as non-institutional buyers.

The states with the highest institutional buyer market shares were Texas (28%), Georgia (19%), Oklahoma (18%), Alabama (18%), Mississippi (17%), Florida (16%), Missouri (16%), North Carolina (16%), Ohio (16%) and Utah (16%).

With mortgage rates rising, though, competition for homes may be cooling. But with that, demand for rentals may increase. For example, existing home sales in April slipped 0.3% from March to an adjusted annual rate of 5.61M homes, less than the 5.65M expected. And inventory of unsold existing homes increased to 2.2 months of supply in April vs. 2.0 months of inventory in March, but still far below the typical level of 6 months.

Stocks in the single-family rental market include Invitation Homes (INVH), and American Homes 4 Rent (AMH). Last year, KKR (KKR) was reportedly forming a single-family rental company, My Community Homes and Blackstone (BX) struck a deal to buy home rental company Home Partners of America in a $6B deal.

For companies involved in house-flipping: Opendoor Technologies (OPEN) and Offerpad (OPAD). Recall that Zillow (Z) is winding up its iBuying business.

Some homebuilders are getting into the single-family rental sector, as well. Last year, Lennar (LEN) formed Upward America Venture to acquire single-family homes for rent in high-growth markets.

See why SA contributor DGI Journeyman calls American Homes 4 Rent (AMH) a (relative) bargain