Nebraskans will soon struggle to compete with the rising real estate prices as large investing companies continue to buy residential properties statewide

In the last couple of years, the U.S. housing market has literally exploded, and to date, Americans still have hard time finding proper homes at reasonable and affordable prices. Until few months ago, the situation with rising house prices escalated to a point where more and more people were simply forced to move out and seek more affordable housing in the suburbs. That issue eventually resulted in two additional problems: increased transportation costs due to the high gas prices and longer travel times for Americans.

The unspoken point is that house prices will continue to go up year over year in the long run. Historically, the real estate market has an increasing trend, both in terms of supply and demand, and in terms of soaring prices. While most Americans are aware of this trend, real estate prices in recent years have seen exponential growth, causing a lot of problems for everyone involved in the buy/sell process including buyers, real estate agents, and construction companies.

Why house prices are going up lately

As we already mentioned, housing prices have a tendency to soar year over year. The fundamental reasons for housing prices appreciation are the increasing demand for houses over the increased but limited supply, plus the inflation rate added to the cost of building. Since construction costs climb due to inflation, the price of the final product will also be higher. Per the Trading Economics price chart, house prices have been going up since the early 90s, with a few exceptions like the 2008 financial crisis, and this is a natural trend that we can’t stop in the long run. In the short term, there are financial instruments that can slow down the rising price rate, but more on that later.

source: tradingeconomics.com

From what is clearly seen in the TE’s chart, year over year house prices follow a similar, steady rising trend with two exceptions. The first exception occurred in 2008, when the housing market collapsed, and it took several years for the market to recover to the pre-crisis levels. The second exception happened in mid-2020, when house prices started their exponential growth that lasted until February of this year, when prices reached their peak.

The Covid-19 pandemic is one of the most important reasons for high house prices lately. The majority of American businesses needed only a few months to reorganize and prepare the ground for the new business era, working from home, in order to keep their employees as less exposed to the virus as possible. What should have been just a temporary period, ended up as a permanent trend, at least for a decent number of major national companies. More or less, almost every single major company offers some form of ‘work-from-home’ option for their employees as the measure “slips through a small door” and slowly becomes one of the most important working conditions for existing and new employees.

Working from home immediately resulted in a strong, increasing demand for home rentals. Rising demand for rental homes eventually increased rental prices. Investors immediately saw the opportunity and started buying properties as a safe and long-term investment, but more than ever, they are focused on easy yields from rental homes as rents are soaring. Increasing demand for new purchases, naturally, results in a never-ending rising prices trend. History has taught us that investing in properties is one of the safest long-term investments, and investors are well-aware of that.

The real estate industry in the equation

The real estate industry loves to say that the only solution to the housing shortage is to build more houses in the future with the aim of meeting the always growing demand with proper supply and, therefore, see stable and reasonable prices. As expected, the real estate industry players will only look to increase their profits, but again, as expected, they purposefully overlook very important part of the overall equation: the number of houses sold.

According to Forbes’ recent analysis, the number of houses for sale is equal to the number of houses put up for sale, minus the number of houses sold. (Very few houses have been pulled off the market unsold.) The supply of houses for sale is very low today because investors bought up so many houses that they pulled down the supply of houses for sale. Mathematically, when investors buy more houses, fewer houses are for sale.

At the end of the day, construction companies are working with full power to build as many properties as possible, despite facing high costs, unstable material prices, and supply chain issues. While the construction companies are working like never before with an eye toward making more profit and trying to meet the ever-growing demand, the supply still can’t get close to the demand, leaving a huge gap.

The Federal Reserve hiked interest rates to combat inflation and high house prices

Another reason for skyrocketing house prices is record-high inflation and rising consumer price index. The current inflation rates are the highest recorded in the last four decades. In May, the consumer price index (CPI), was 8.6% in America compared to last year. The widely followed inflation gauge rose 1% from a month earlier, topping all estimates as it’s expected to continue the rising trend in the next months. The previous forecast proved true. In June, the consumer price index (CPI) rose 9.1% from a year earlier in a broad-based advance. The widely followed inflation gauge increased 1.3% from a month earlier, the most since 2005, reflecting higher gasoline, shelter and food costs.

Maybe it was already a bit late when the Federal Reserve started increasing interest rates in an effort to battle inflation, rising CPI and high prices. Hiked interest rates will most certainly slow down the economic growth, but there is no other way to combat the inflation that will eventually slow down the expansive housing market and, therefore, lower the prices.

FED hiked rates by 75 basis points at its meeting on July 26-27, 2022, lifting their benchmark to a target range of 2.25% to 1.50%. The ‘very aggressive and restrictive’ rates policy is expected to continue in the upcoming months, and even the FED’s Chair Jerome Powell suggested they could continue increasing the rates in the follow-up months. With higher interest rates, loans are becoming more expensive and people are discouraged from buying properties at such high interest rates, leading to a lowered demand for houses. Lower demand further translates to declining prices.

While experts are concerned that the aggressive FED policy might result in a recession as soon as next year, we can already see that hiking interest rates has resulted in decreasing house prices. That said, the TE’s chart shows the highest house prices recorded in February this year. Starting March, a slight decline in prices was recorded, something that continued in April and is expected to continue in the upcoming months too. FED’s first rate hike was announced in March, which corresponds with the start of the declining house prices trend.

Corporate Wall Street investors buying homes in bulk

As we mentioned earlier, buying houses and properties is one of the safest long-term investments for investors. In recent years, corporate Wall Street real estate investors have become more aggressive in buying houses, which further causes market disruptions, especially with the fact that these corporations usually aim at the lower end of the market. Those looking to buy a first home are the most affected by this trend, taking into consideration the fact that corporations, in almost every single case, offer tens of thousands of dollars over the asking price just to outbid other interested parties, buy the properties in bulk, and turn them into rental properties.

Sun Belt states were, and still are, the most popular markets for corporate real estate investors. California, Texas, Florida, Arizona, South Carolina, Nevada, and New Mexico are among the most popular states for investors for a variety of reasons, and they all have two things in common: they are all popular among travelers, and retirees tend to move to these states.

Residents in these states felt the impact of corporate real estate investors in a short period of time. Failing to buy a house at a reasonable price eventually resulted in frustration, indignation, and disappointment for local residents, prompting local and state leaders to do something within their possibilities to limit corporate investors purchasing homes in bulk. Because different laws are being passed, the states that were once popular with corporate investors are becoming less and less appealing to them.

House prices and real estate market in Nebraska

Nebraska is not immune, and the state’s housing market follows the nationwide trend. Per Zillow, an American tech real-estate and rental marketplace company dedicated to empowering consumers with data, the typical home value of homes in the United States was $354,165 in June this year, which is 19.8% increase compared to June 2021. Understandably, home values are not uniform across the country, and in some states, the typical home costs far more than the national average — while in others, homes cost way less.

Per Zillow’s data, a typical home in California, Texas and Florida costs $799,311, $313,339 and $397,280, which is 18.5%, 23.9% and 34.3% more compared to last year, respectively. Corporate real estate investors have found these three states among the most popular ones for decades now, but due to the very high prices and implemented local regulations, investors are slowly losing interest and limit their activity in those markets. Investing in other states is how investors grow and diversify their portfolios now.

Nebraska is currently far below the national average, both in terms of typical home values and increased home values since last year. Per Zillow, typical home value of homes in Nebraska was $239,574 in June this year, which is 12.3% more compared to June of last year. While this doesn’t sound like an issue for now compared to California, Texas, and Florida’s data, Nebraskans have started feeling the pressure and market changes as more and more giant companies are investing aggressively in Nebraska in recent years.

House prices in Nebraska have been going up steadily since the beginning of the last decade, usually at a constant rate each year. Unlike California and other already over-saturated, high-priced real estate markets, Nebraska’s typical home value started a more aggressive increasing trend in 2015 that lasted until mid-2020. That’s when the real estate market literally exploded due to the sudden exponential and growing demand for housing, mostly driven by the work-from-home pandemic related business era that followed after the initial Covid-19 lockdowns. Nebraska followed the nationwide trend, and since mid-2020, house prices have been going up at unseen rates so far.

Giant companies and corporations in the equation

As corporate real estate investors buy up entire communities and turn them into rental properties, fewer properties for sale remain on the market for other interested parties. Economically, such scenarios drive up prices, leaving no room or opportunity for people to buy homes at affordable and reasonable prices. In over-saturated real estate and high-priced markets, people interested in buying a new home usually face three issues: there is nothing left to buy; houses are expensive to the point that people can’t afford them anymore; or those interested will simply have to pay for an overpriced property.

While several major corporate real estate investors own roughly 300,000 properties nationwide, which is a small portion of the whole real estate market, they have the ability to make a huge impact in the areas where they operate. According to a Redfin analysis published earlier this year, investors purchased 18.4% of all homes purchased in the United States in the fourth quarter of last year, a record high, up from 12.6 percent a year earlier. Investors see these investments as a safe bet, now more than ever.

To protect residents, local and state leaders in some cases implement new bulk purchase regulations, making it more difficult for investors to buy dozens of units at once. Although the ‘damage’ has already been done in most cases because these steps were implemented far too late, investors are usually discouraged from continuing to invest in local areas due to limiting legislative, and they seek other markets where they will continue their operations.

Property-by-property negotiation is a long and exhausting process, and that’s why corporate investors want to buy in bulk. The history has shown that the buy-in-bulk method has turned out to be a winning formula for investors since they can buy tens, if not hundreds, of properties at once, avoiding dozens of potential problems they might face during the process of negotiating to purchase units one by one.

Months into the pandemic, corporate investors saw an amazing investment opportunity and started a buying spree. With the aim of preventing real estate market disruption as soon as the leaders spotted the increasing investors’ activity, California, the state with the second-highest house prices after Hawaii, implemented legislative combating big corporate real estate investors. That said, California Governor Gavin Newsom signed SB 1079 back in 2020, a bill intended to make it more difficult for big-money investors to buy up foreclosed properties en-masse.

Among other changes, the bill prohibits the bulk sale of foreclosed properties, and eligible bidders, including current tenants, prospective owner-occupants, nonprofit corporations, and housing collectives who plan to live in the properties in question, can match or exceed the investors’ bid in the next 45 days. Despite the enforced legislative, house prices in California have gone up, but without the bill, it could’ve been far worse for Californians who were into buying new homes in the last two years.

Corporate real estate investors and legislative in Nebraska

In several other states, similar legislation limiting corporate investors purchasing properties in bulk is being considered, both at the state and local level. That said, Ohio Sen. Louis Blessing in May introduced a California-like bill with a proposed 45-day holding period, a bill that he asked to be enforced statewide. Atlanta, Ga., and Newark, NJ, are considering similar legislatives and at this point, mayors in these cities are becoming more vocal in making it more difficult for corporate investors to buy properties at least on a local level. Residents in these two cities have already felt the consequences of corporate investors’ purchasing activities in those regions.

In Nebraska, there is currently no legislative that prevents such scenarios. That’s why the state of Nebraska, as well as other states with no limiting legislative, are slowly becoming new popular markets for corporate investors where they aim to continue their activities. Currently, the Omaha Housing Authority remains by far the largest landlord in the city of Omaha. The second largest landlord is Fleetwood Investments LLC, company founded in 2012 that has the largest portion of its investments in multifamily properties, primarily in Chicago, but also some investments in Austin, TX, and remains interested in exploring new markets, per the company’s Linkedin profile.

The third place on Omaha’s largest landlords list is reserved for Vinebrook Homes, an investment company that has been the largest buyer of single-family homes in Douglas County, especially in the North Omaha area, in the past two years. For many, Vinebrook Homes’ third place on the list comes as a huge surprise, taking into consideration the fact that the company’s first ever investment in Nebraska was in 2019. Vinebrook doesn’t intend to stop here, and Omaha residents at this point are afraid that many other similar companies are ready to follow Vinebrook’s path.

Image source: flatwaterfreepress.org

Investors like Vinebrook Homes usually target the lower end of the market and turn units into rental properties. This is a huge problem for average and below-average income families who are required to pay much higher rents compared to what they had been paying or simply move out. People living in these micro areas are immediately impacted by the investors’ activities, but neighboring areas are usually affected in a short period of time.

Americans are losing the race with rising house prices since mid-2020, and so is the case with Nebraskans. While Nebraska still has ‘modest’ house prices increase compared to many other states, it’s only a matter of time when more corporate investors are about to start exploring the Nebraska housing market and take advantage of the fact that there is no preventive legislature that will make buying homes in bulk more complicated for them. Community groups and local leaders are searching for answers to the following question: Should they combat companies like Vinebrook? If so, how? Flatwater Free Press’ team is closely following the matter, both nationally and locally.

Companies investing in Nebraska

In April this year, Google announced the company’s newest, $750 million worth project in Nebraska. Per the company, Google is building its first Omaha data center. With the data center investment, the company will surpass the $1 billion mark in investments in the Husker state since the company has already invested $600 million in 2019. Nebraska Gov. Pete Ricketts in April said that Google’s investment is a great financial infusion for the local economy as he found the investment to be yet another proof that Nebraska offers great opportunities for large companies.

Such investments are beneficial for the local economy and most certainly will have a positive impact in the long run. Since 2009, Google has donated more than $2 million in grants to Nebraska nonprofits and schools, and the tech-giant has awarded nearly $2.4 million in free search advertising to area organizations. When they announced the latest project a few months ago, officials with the company said they intend to give $100,000 to Omaha’s future main library project, which is expected to rise at 72nd and Dodge Streets.

These huge investments, however, come at a cost for the local community. In the case of Google, the company will have to fill dozens of different job positions, including supplier roles, computer technicians, engineers, maintenance, and security positions. This is a fantastic opportunity for local residents, who will most likely fill the majority of the open job positions, but Google will also need to accommodate out-of-state experienced workers who, in some cases, will be moving with their families.

As a standalone case, it’s unlikely that Google’s investment will disrupt the local housing market, but Nebraska, especially the Omaha metro area, is a potential market that has yet to be discovered by giant companies. If other companies decide to follow Google’s steps and start their investments in the area, that will increase the demand for houses, eventually making the market more popular and interesting for corporate real estate investors like Vinebrook Homes.

The increased presence of corporate real estate investors in the area means less supply for local residents and, therefore, higher prices. If we take into consideration the fact that rising prices naturally follow the rising demand for housing with an added inflation rate, it’s easy to assume that Nebraskans will start to lose the battle with the rising house prices statewide if no proper legislation is enforced to limit the corporate investors’ activities in the future statewide or locally.