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38 SHIFTING TRENDS IN HOUSING INVESTMENT e amount of homes purchased for investment has increased to its highest level in nearly 20 years, and according to CoreLogic, this increase is from smaller investors rather than large institutions. In a recent report, CoreLogic identified what these investors were buying. CoreLogic's report notes that the current investment rate is 11.3%, the highest rate since 1999. Additionally, investment purchase rate in 2017 was the second highest on record at 11%. Smaller investors are the driving force behind the increased investment activity, as the "mom-and-pop" investors grew from 48% of all investor-purchased homes in 2013 to more than 60% in 2018. "Large investors—those who purchased more than 101 homes—nearly doubled their activity between 2000 and 2013 but have pulled back since the foreclosure crisis and now sit at 15.8% of purchases," added Ralph McLaughlin, Deputy Chief Economist, CoreLogic. "Medium-sized investors—those who purchased between 11 and 100 homes— have also seen their share steadily fall, from a peak of 30% in 2010 to 22.7% in 2018." Investors have taken a particular interest in starter homes. CoreLogic states that the share of starter homes purchased by investors are 2-3 times the investor purchasing rates of move-up (middle tier) and high-end (upper tier) homes that also peaked in 2018 at 7.8% and 6.3%, at over one-in-five homes over the past two years, with a rate of 20.3% in both 2017 and 2018. CoreLogic found that the highest investment rates were situated in the Eastern United States. e top 10 metros with the highest investor purchase rates are in eastern states, including Detroit, Philadelphia, and Memphis, Tennessee at 27%, 23.3%, and 19.7%, respectively. In these high-investment areas, investors are being drawn by rising rents. "While there are several plausible explanations, we found investors are attracted to markets where rents are relatively high compared to purchase prices," McLaughlin said. "e inter-market variation in median cap rates—which is the ratio of annual rent collected on a property compared to its value—is highly correlated with the share of investor activity in a given market." Despite the high investment levels in the east, investment has been slower in the west, with all five of CoreLogic's metroes with the lowest rate of investment activity located closer to the West Coast, including Ventura, California; Boise, Idaho; Oakland, California; San Jose, California; and Sacramento, California at 4.8%, 4.8%, 5.1%, 5.2% and 5.3%, respectively. GETTING BACK ON TRACK Household growth has returned to a normal pace, according to the State of the Nation's Housing report from the Joint Center for Housing Studies of Harvard University. e study found that the economy is "finally back on track " after the weak household growth and sluggish construction recovery following the Recession. Household growth picked up to 1.2 million a year in 2016–2018, but new construction was still depressed relative to demand, with additions to supply just keeping pace with the number of new households. Homeownership is picking up as well, as the the U.S. homeownership rate edged up in both 2017 and 2018, to 64.4%. According to the study, this translates into a 1.6 million jump in the number of homeowners. Nationally, affordability has picked up, but depending on the market, some potential homeowners may find that the price-to- income ratio is near peak levels. Price-to- income ratios are highest on the West Coast, where many metroes experience DTIs of 6.0 or higher. Additionally, a rise in interest rates and home prices plus a tightening of credit, on top of the limited supply of entry-level housing, could put homeownership out of reach for many more households. e rental market, meanwhile, is on solid footing. According to the study, all rents rose at a 3.6% annual rate in early 2019, or twice the pace of overall inflation. Most of the declines were at the single-family rental level, and Harvard's study notes that even if homeownership rates continue to increase, low vacancy rates and shifts in the existing stock are likely to prevent a significant softening of rental markets. "In fact, weaker overall rental demand could help to ease conditions at the low end," the study says. "With most new construction targeting the high end of the market, there has been some potential for excess supply to filter down to lower rent levels."

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