The Implications of Fannie Mae’s Investment in Invitation Homes

Earlier in 2017, Invitation Homes, one of the nation’s largest Real Estate Investment Trusts (REIT) went public. In addition to gaining billions in the capital market, they received a $1 billion interest-only loan from Fannie Mae. This loan was met with a lot of questions and outrage. People are concerned about Fannie Mae’s involvement in backing a company that buys homes to use as rentals when they “help lenders serve today’s home buyers and homeowners.”

Many professionals are now wondering what this means for our housing markets. Will people be priced out the market? Will inventory drop even farther?

Here are a few ways Invitation Homes increased capital may negatively impact the Denver area market:

Pushes Limits of Inventory

According to public filings, the loan from Fannie Mae will be used by Invitation Homes to purchase single-family homes to convert to rentals. They plan to do so in areas that already have limited supply, such as California, Florida and likely Colorado. When there is a limited supply available for sale there is often limited supply available to rent.

Invitation Homes’ focus on these markets means that tight inventory will get tighter and local landlords will have to fight harder for a property. When a big corporation sweeps in the purchase a home they can pay in cash and often waive many steps of the process in order to quickly close a sale. Once these homes are available for rent it will be harder for local property managers to market and fill their vacancies.

Complicates Duty to the Public

By putting its support behind REIT giant Invitation Homes, Fannie Mae complicates it’s stated duty to the public. As a government-sponsored enterprise (GSE), most professionals believe the duty of Fannie Mae is to the public.

The National Association of Realtors (NAR) President William E. Brown says: “Our nation needs the GSEs to bolster homeownership opportunities…not fund special-interest deals with Wall Street financial firms that take away those opportunities.” While the NAR isn’t against REITs in general, they are concerned about the conflict of interest seen with Fannie Mae’s recent investment.

Increases Single-Family Home Rentals

We are already seeing a 50-year low in homeownership throughout the country. This comes from a variety of reasons including student debt and increasing home prices. Because of this, we are seeing many renters seeking out single-family home rentals instead of attached units, especially if they are wanting a family or pets.

A move like this shows the demand for single-family home rentals. Tim Mayopoulos, CEO of Fannie Mae says “all of our research indicates that many renters want to rent single-family homes because they like the lifestyle.” This rings especially true in crowded markets such as the Denver area as low inventory is especially hard for first-time home buyers.

Fannie Mae’s decision to be in business with a huge REIT is a complicated one with a variety of implications in many real estate markets. If you would like to beat Invitation homes to the punch and purchase a property in the Broomfield and Denver areas, for investment or otherwise, get in touch with us today.

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