Investors Setting Their Sights on Starter Homes

According to CoreLogic Deputy Chief Economist Ralph McLaughlin, investor homebuying in 2018 was the highest on record. Investors purchased around 11% of available homes that year, and in this Video Spotlight, McLaughlin discusses why investors are focusing their efforts on the starter home market, and what impact this may have on potential homebuyers.

According to CoreLogic data, “mom-and-pop” investors grew from 48% of all investor-purchased homes in 2013 to over 60% in 2018, and these small-volume investors seem to be focusing primarily on starter homes. Investors purchased starter homes at 2-3 times the rates of middle upper-tier homes.

"Why are investors buying homes at high rates in some markets and lower rates in others?" McLaughlin asks. "Simply put, investors are attracted to markets where rents are relatively high compared to purchase prices. This called a cap rate, and it is highly correlated with the share of investor activity across the largest 100 markets."

McLaughlin goes on to say that markets that witnessed a larger increase in the share of investors also saw their market heat up.

"While an uptick in investors into a market perhaps increases competition and lowers supply, the opposite is also possible: markets with tightening supply could draw investors in as they perceive such markets to be safer bets than those with more plentiful supply," he continues. "Either way, it’s a truism that homebuyers today are more likely to cross paths with investors during an open house than at any other time in the past two decades."