Wall Street is making homeownership even harder for Coloradans

The American Dream is often equated with homeownership — most Americans’ wealth is due to owning property, and owners have a net worth that’s approximately 40 times higher than that of renters. But buying a home is more difficult than ever before due to ever-increasing asking prices and sky-high interest rates that show no sign of slowing down.

It’s no secret that the Colorado housing market is one of the most expensive in the nation. But now we have more detailed data that illuminates one of the main reasons it’s impossible for most working-class Coloradans to buy a home of their own. Out-of-state investors, private equity groups, and asset management firms (also known as institutional buyers) have been pricing out working families by making all-cash offers for single-family homes that are frequently far higher than the original asking price, then renting them out for a premium price.

Just in the fourth quarter of 2021 alone, institutional buyers made up 18.4% of home purchases. That’s much higher than their share of purchases from a year before (12.6%). In Colorado, out-of-state investors accounted for 14% of all home purchases, making Colorado the 16th most popular state for institutional buyers. And in states where the share of institutional buyers is higher, the median purchase price is also higher.

Recently, the National Association of Realtors (NAR) published a report (PDF link) on the growing trend of investors buying up hundreds of thousands of homes and converting them to rentals. NAR found that this practice results in more housing stock being taken off the market, which tends to make the remaining stock that much more competitive, resulting in price increases across the market. In 2021, this phenomenon increased in 41 of 50 states compared to 2020. Colorado, in particular, had the fifth highest increase among all states.

This practice is disproportionately impacting Coloradans, as the Centennial State meets much of the criteria that Wall Street looks for when purchasing homes. When out-of-state investors are deciding where to buy up housing stock, they typically do so where the share of renters is at least 30% (34.15% of Coloradans rent), the share of residents with Bachelor’s degrees is at least 30% (42% of Coloradans have Bachelor’s degrees, the 2nd highest percentage in the nation), and where median household income is at least $59,000 (median household income in Colorado is $75,231), among other metrics.

This helps provide context on why buying a home in Colorado seems to be restricted to all but the already wealthy. According to data from First American Title, the median purchase price in the Denver Metro area alone was $449,900 in 2020, compared to just $215,252 in 2009. That’s an increase of 209% in a little more than a decade!

While Congress has yet to pass a law to prevent out of state investors from buying up homes, there are a few examples of local and state-based solutions. In California, Senate Bill 1079 became law in 2020, which limits corporations’ ability to buy foreclosed properties. Before a foreclosed house gets put on auction, tenants and local governments will first have an opportunity to purchase it before an out of state investor adds it to their portfolio. A similar bill has been introduced in Ohio (paywalled link), though that bill has yet to become law.

Homeowners’ associations are also taking action in an attempt to slow this trend. In April, the Wall Street Journal reported that a homeowners’ association near Winston-Salem, North Carolina, is attempting to amend its covenant to require that all buyers live in the home they purchase, or leave it vacant for six months before renting it out.

Do you think Colorado should pass legislation to prevent out of state investors from buying homes here? Let us know in the comments!

(Featured image: @Rawf8, stock.adobe.com)

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