Institutional investors rushing in to buy properties is not a main reason for the ultra-hot U.S. housing market, Coldwell Banker CEO Ryan Gorman told CNBC on Tuesday.
In an interview on “The Exchange,” the real estate executive acknowledged the potential for institutional buyers to add further pressure on prices, as they look for potential hedges against inflation, for example.
“Today, though, it’s a very, very small percentage of the overall market,” said Gorman, whose company, Coldwell Banker, is part of Realogy Holdings Corp. “Yes, cash offers are very high, but the vast majority of cash offers — even in multiple-offer situations — are coming from individuals who are looking to occupy the home and own the home just as they would any other.”
In the first quarter, investor home purchases rose on a year-over-year basis for the first time since the start of the Covid pandemic, according to a May report from real estate brokerage Redfin.
Gorman said he expects institutional investors to remain attracted to residential real estate, including both multi-family and single-family rentals.
“In terms of impact on the overall market, though, we’re talking about percentage points — low single digits at this point, with some markets trending a little bit higher than that,” Gorman said. It is “something to watch, but not as concerning as it might sound.”
The housing market has been one of the strongest pieces of the U.S. economy during the pandemic, sparked by a number of factors, including affordable financing, a desire for more space, and increased geographic flexibility thanks to remote work.
That influx of demand, coupled with a lack of houses for sale, has caused prices to rocket higher. In April, home prices posted an annual gain of 14.6%, which is up from 13.3% in the prior month, according to the S&P CoreLogic Case-Shiller National Home Price Index.
Some people have worried the housing market is getting too hot, potentially creating yet another bubble as prices move to higher and higher levels.
Gorman said the U.S. simply needs more homes to be on the market, because the fundamental factors influencing would-be buyers are likely to stick around.
“Additional inventory is the solution to all that ails us at this moment,” Gorman said.
New home construction is “way behind where we need it to be,” he said. “Despite high builder confidence, it’s going to continue to lag. We’re missing 4 [million] to 6 million homes that we need today.”