Despite the federal government continuing to subsidize the mortgage process, homeownership rates are at 50 year lows. There is much debate about what is driving such lows, from demographic shifts to slowing construction of new homes. Perhaps the most pressing homeownership issue is also the most obvious: home prices keep rising.

So as homeownership rates fall, America is fast becoming a country full of renters. And behind every renter there is a landlord. In fact, there are so many landlords now that they are practically taking over the U.S. housing market.

Almost 40 percent of homes sold last year (37 percent) were purchased by owners who don’t intend to live in them. That surprising data comes from a new report by website ClearCapital.com in partnership with Attom Data Solutions that examined the tax assessment data on new mortgages and homeownership deeds.

Yes, those numbers don’t account for people buying second (or third) homes, or for investors who are buying homes and renovating them with the intention of flipping them. But still these numbers indicate that the number of total landlords is sharply rising.

After the foreclosure crisis and the resulting Great Recession, Wall Street investors rushed into the rental market via cheap homes purchased in high quantities through private equity firms. Five years ago, “institutional investors” made up almost 8 percent of all home sales in the U.S.

Now that home prices are on the rise, those professional investors have cooled on purchasing groups of homes as part of their larger portfolios and investment strategies. Last year the share of homes bought by institutional investors dropped all the way down to 2.9 percent.

As Wall Street investors looked elsewhere, Main Street investors more than made up for the slack. These “small time” investors were also aided by Silicon Valley as tech companies made finding, managing and even financing such properties more accessible to the non-institutional investor via apps and other online services.

So what’s driving these smaller investors to look to the rental market? The main theory is that once homeowners have paid off their own mortgages, rental properties become an attractive and stable way to save for retirement.

Expert Daren Blomquist, senior vice president at Attom Data Solutions, further explains that even these small, personal investors are becoming more sophisticated. They’re looking outside of their local rental markets for higher profit margins and lower home prices.

Take Seattle, or Silicon Valley North, where the red hot real estate market has reached almost Los Angeles levels of price inflation. Seattle’s median home price was only slightly lower than LA’s, $414,000 at 2016’s end. There the percentage of homes sold to non-occupiers saw its height in 2013, at 23 percent. Conversely, Dallas is much cheaper, offering a median home price of $201,000. Over the past 12 years in Dallas, the percentage of homes sold to non-occupants has nearly doubled.

While it goes against the “American Dream”, only time will tell if this trend of moving towards a larger rental based real estate market is a positive one. Here’s Blomquist again: “On one hand, landlords are filling a need that exists because of the low homeownership rates. They may also be crowding out folks that want to be homeowners but can’t compete with investors.”

If you’re interested in buying or selling a Luxury Home in Los Angeles, please contact us now at 323-829-8811 or email Susan Andrews at susan@luxurylahomes.com.

Contact us anytime if you ever wonder “What’s my home worth”? Or visit HollywoodHillsValue.com for a free no obligation home valuation.