Investors took a breather when the pandemic hit, pulling back their investments across the board. But now that the pandemic is waning, investors are back on the market and are showing up in record numbers.
According to new research by Realtor.com, investor purchases of homes was up 59% year-over-year when compared to 2020 and is also up by 21% from 2019. On a national level, investor activity accounted for a yearly record of 5.7% of all home purchases—but 4.5% of home sales—meaning that investors were snapping up properties at a faster rate than they were selling them, putting them at odds with homeseekers.
The analysis also found that this trend is having a negative impact on housing supply since homes are not being sold at the same rate at which they are being bought.
According to report author Sabrina Speianu, a Senior Economic Research Analyst at Realtor.com, the market could be at a turning point this fall as the current supply-chain problems are affecting the house flipping business—as materials become harder to obtain, prices rise, meaning home flipping becomes less profitable. The inventory crisis also hinders the ability for flippers to bring the home back to the market in a timely manner.
“Over the next year, opportunities for buy-and-hold investors may also be slightly more limited. While mortgage rates are expected to increase over the next year, relieving some demand pressures in the housing market, a lack of supply of homes and low new home construction levels continue to support steady price growth,” Speianu said in the report. “Finding a bargain may become increasingly difficult over the coming months and we may see investor interest slow. In the meantime, rental growth has a strong outlook, with tech markets once again commanding growth and increasing unaffordability of homes for sale likely pushing back some consumer plans to purchase, thereby elevating rental demand. This could mean that investors who bought over this past year can look forward to a stable and growing revenue stream over the next year.”
Since the pandemic began investor purchases dropped off significantly, but investors began to return to the market starting in March and April. To put this into perspective, investors in July 2021 were purchasing 21% more homes than they before the outbreak in 2019.
“Investor purchases continued to rise throughout the summer meaning that homebuyers faced increasing competition,” Speianu continued. “Up until last October, investors had been positively contributing to housing inventory, by selling homes at a greater rate than they were purchasing for 11 months in a row during the pre- and earlier pandemic period. In April, investors sprung back into the market, buying up approximately 2,700 properties more than they sold off, a negative net contribution not seen since late 2015. By July, investors purchased 5,300 more homes than they sold, leading to the largest gap in our data since 2001.”
Breaking the data down for the top-50 metro areas, investors are not buying properties at the same rate across the board. In the metropolitan areas of Atlanta, San Francisco, Dallas, Los Angeles, and Riverside, California, investors were selling homes at a greater rate than they were buying them as of July—meaning that investors are potentially positively contributing to inventory.
On the other hand, buyers in the Miami, Florida; Charlotte, North Carolina; Phoenix, Arizona; Tampa, Florida; and Jacksonville, Florida are areas where investors are purchasing homes faster than they are selling them—putting them at odds with the average homebuyer.
“The top 10 metros where investors are buying more than selling have an average population of 4.8 million, compared to an average population of 5.4 million in metros where investors are currently selling more than buying,” Speianu wrote. “The metros where investors are buying more tend to have more active listings relative to the total housing stock, with top buying metros having 4.9 homes available for every 1000 households this July, while the top selling metros only had 4.0 homes available for every 1000 households. The July 2021 listing price in metros where investors are buying more was $392,000, on average, compared to $672,000 for metros where investors are selling more.”
“Rent growth rates in markets where investors are buying more tend to be higher, on average, growing by 15.3% year-over-year in July 2021 compared to 12.4% in markets where investors are selling more. The price-to-rent ratio, one of several metrics investors use to determine potential return and profitability, is also generally lower in investor-buyer markets compared to investor-seller markets, meaning that home prices aren’t drastically more expensive than rents and investor buyers can expect better returns relative to the price of the homes they are buying.”
Data for the report was gleaned from deed records dating back to 2000 nationally and in the top-50 metro areas. The report only included single family homes, condos, townhomes and rowhomes but excluded multi-family buildings which is not a market the typical homebuyer is competitive in. For the purposes of the report, an investor was defined as a buyer or seller who is an absentee owner registered under a company name.
Click here to view a full copy of the report, including breakdowns for the top-50 metro areas.