Institutional Investors Are Shunning the Housing Market. Should You?

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A large real estate investor is selling 2,000 homes it recently bought. Read on to find out why potential home buyers don’t have to exit the housing market. 

Institutional real estate investors are backing away from the residential real estate market. Bloomberg recently reported that Starwood Capital, which owns a large real estate investment trust (REIT), is selling 2,000 of its single-family rentals. The company had only bought the homes two years ago.

And earlier this year, John Burns Research and Consulting found that institutional investors bought 90% fewer homes in the first two months of 2023 than in the same period last year.

Over the past couple of years, rising interest rates have made it more expensive for institutional real estate investors to make money from some homes. But even as some institutional investors shun the housing market right now, that doesn’t necessarily mean you should.

Buying a home is a personal decision

With current mortgage interest rates at about 6.9%, sales of existing homes fell 20% in May, according to data from the National Association of Realtors.

While it’s more expensive to buy a house right now compared to just a couple of years ago, the decision is not just financial; it’s also personal. More than one-fifth of home buyers say the desire to own their own home is the primary reason why they want to buy.

So while institutional investors may be backing away from the housing market, that doesn’t mean you should as well. There are many reasons why someone may want to buy a home, even when interest rates are elevated. For example, you may want a bigger house to grow your family, or you may be retiring soon and want to downsize to a smaller home.

Only you can know when it’s the right time to buy a home. Just make sure you’re well-prepared for the process.

How to prepare yourself for buying a home

If you’re just starting the home-buying process, set aside money for a down payment. Ideally, you want to put down 20% of the home’s price to avoid paying private mortgage insurance (PMI). You can still get a loan with less than 20% down, but you may pay a higher interest rate.

It’s also good to check your credit score and get a free credit report. Knowing your credit score will help you know which loans you qualify for and what interest rate you can expect. Also, combing through your credit report will allow you to dispute any inaccurate information you may find.

Another important step toward buying a home is to find the best mortgage lender. Not all lenders will offer you the same interest rate or the same mortgage terms, so it’s important to shop around. Some lenders charge more fees than others, while some have faster loan approval times. Even qualifying requirements between lenders can vary.

Taking the time before you begin looking for a home to find the best lender could make your home-buying process much easier and help you avoid any surprises once you’ve found the home you want to buy.

Remember, only you can decide when it’s the right time to buy a house. But if you follow these few simple steps first, you’ll be much more prepared to do so when the time comes.

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