Leaving Households Behind: Institutional Investors and the U.S.Housing Recovery

Abstract

Ten years after the mortgage crisis, the U.S. housing market has rebounded significantly with house prices now near the peak achieved during the boom. Homeownership rates, on the other hand, have continued to decline. We reconcile the two phenomena by documenting the rising presence of institutional investors in this market. Our analysis makes use of housing transaction data. By exploiting heterogeneity in zip codes' exposure to the First Look program instituted by Fannie Mae and Freddie Mac that affected investors' access to foreclosed properties, we establish the causal relationship between the increasing presence of institutions in the housing market and the subsequent recovery in house prices and decline in homeownership rates between 2007 and 2014. We further demonstrate that institutional investors contributed to the improvement in the local labor market by reducing overall unemployment rate and by increasing total employment, construction employment in particular. Local housing rents also rose. * This Philadelphia Fed working paper represents preliminary research that is being circulated for discussion purposes. The views expressed in these papers are solely those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. Any errors or omissions are the responsibility of the authors. No statements here should be treated as legal advice. Philadelphia Fed working papers are free to download at https://philadelphiafed.org/research-and-data/publications/working-papers. We thank Chris Cunning

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