M
any people blame large investors for driving up housing prices, but the reality is more nuanced. Studies show that institutional investors primarily operate in a small number of U.S. markets, while the majority of investor-owned homes are held by small mom-and-pop investors who own only a few properties.

    The National Association of Realtors' existing-home sales report for May was disappointing, with sales down 0.7% from last year and marking the fourth consecutive month of declining year-over-year home sales. Meanwhile, new-construction home sales fell by over 13% in May, according to Census data. However, investor purchase activity jumped to its highest level in at least five years, accounting for nearly 27% of all residential home purchases.

    The increased investor activity has sparked concerns that Wall Street is gobbling up Main Street, but this argument may be overstated. In reality, most investors own only a handful of properties, with 85% owning five or fewer homes. The rise in investor purchases can be attributed to a decline in traditional homebuyers due to skyrocketing mortgage rates.

    Investors are not the primary cause of soaring home prices; instead, credit goes to underbuilding and historically low mortgage rates. Investors play an important role in providing liquidity during a period of low demand from traditional homebuyers and offering rental inventory to those priced out of the market.

    The states with the highest populations tend to have the most investor-owned properties, but none of these ranks among the states with the highest percentage of investor-owned properties. Hawaii has the highest percentage at 40%, likely due to its tourism-dependent economy. Other states with high percentages include Alaska, Arkansas, Vermont, West Virginia, and Wyoming.

    The focus on institutional investors may have distorted local housing trends, leading to proposed anti-investor legislation. In reality, most investor-owned homes are held by small investors who own a few properties, not massive institutions or hedge funds.