Banking

Investors snatched up a record $77 billion worth of homes in the last six months, making it even harder for regular buyers to nab one

  • Investors have surged back into an already overheated housing market, a new Redfin report found.
  • Institutional buyers spent a record $77 billion on home purchases during the last two quarters.
  • The activity, a sharp uptick from the pandemic, means even more competition for regular homebuyers.
  • See more stories on Insider’s business page.

Investors spent $77 billion on home purchases — a record sum — over the last six months, according to a new report from residential brokerage firm Redfin.

After dramatically slowing the pace of their acquisitions during the depths of the pandemic, institutional buyers have crowded back into the nation’s housing market during the first quarter of 2021 and fourth quarter of 2020, the report found.

Investors, which include giant single-family rental (or SFR) companies such as Invitation Homes and American Homes 4 Rent, as well as newer institutional players such as the iBuyer firm Opendoor, snapped up nearly 55,000 homes during the first quarter alone, Redfin’s data showed.

That represented a 2.7% gain in the number of homes acquired by investors during the same period in 2020, the first year-over-year gain in quarterly investor activity since the start of the pandemic. The $77 billion of acquisitions, meanwhile, marked an enormous 40% gain over the approximately $55 billion of investor home acquisitions in the second and third quarters of 2020, during what was perhaps the worst period of economic dislocation during the pandemic.  

Investors include not just major Wall Street firms but also smaller real-estate companies and individuals who buy homes to rent out or flip for a profit in cities like Miami, Atlanta, Charlotte, Las Vegas, and Phoenix.

“We expect this investor buying to continue to ramp up,” Daryl Fairweather, Redfin’s chief economist, told Insider. “Investors took a huge pause during the pandemic, and they still haven’t made up for all the homes they didn’t purchase during that period.”

Investors mass-purchasing homes can make life harder for regular buyers

The growing involvement of investors has added to the pressures felt by average homebuyers in an already tight housing market, especially for single-family homes. The pandemic prompted an influx of residents to the suburbs in search of space and continued low mortgage rates have helped stoke a frenzy of buying. Homes that have hit the market in recent months have received interest from large numbers of bidders, frustrating the dream of homeownership for many prospective buyers.

SFR companies have become adept at outmaneuvering everyday homebuyers by offering all cash and moving to close on deals more quickly. A growing crop of iBuyers, meanwhile, including Opendoor, Offerpad, and Zillow, have persuaded homeowners to sell to them without even going to market by making online offers for some homes sight unseen, exacerbating the lack of supply on the market.

Sky-high home prices lead to more renters, which boosts investors’ bottom lines

As the housing market has tightened, the median home price has risen over the past year to about $380,000 in the first quarter, according to Redfin’s data, from $326,000 in the first quarter of 2020. That increase, one of the highest median sales prices on record, combined with an increase in transaction volume by investors, led to the record outlay of investment dollars on home purchases in the fourth and first quarters.

Although rising values have pushed investors to fork over higher sums for homes, they are also beneficial to their bottom line as house hunters, sidelined by the higher prices and competition, are forced to rent instead of buy, boosting the rental market. The possibility that mortgage rates could rise in the coming months from historic lows could further that dynamic, pushing more prospective buyers to rent versus own.

“It makes perfect sense that investors want to get back into the market because there are going to be so many potential home buyers priced out who will instead rent,” Fairweather said.

Competition over single-family homes — even luxury ones — is especially fierce

The investor acquisition activity encompasses a variety of residential property types, condo and co-op apartments, townhouses, and one- to four-family homes. But the purchase of single-family homes, in particular, constituted the biggest share of acquisitions and grew at an even steeper pace during the first quarter of the year compared to the same period in 2020.

Of the 55,000 homes purchased in the first quarter by investors, nearly 39,000 were single-family homes, a 4.8% increase over the roughly 37,000 homes bought in the first quarter of 2020.

Investors like Invitation Homes have focused on modestly priced homes nationally in recent years, but are increasingly shifting to higher-value properties, Redfin found, as they see an emerging market for upper-tier offerings aimed at affluent renters. Untethered by the pandemic, they are seeking temporary dwellings for vacation, remote work, or simple time away from home.

“There’s a lot of demand for these short-term, high-end rentals post-pandemic,” Fairweather said. “People who spend the summer in places like Seattle and the winter in Phoenix. They’re affluent and they want a nice home, and that’s creating an emerging segment in the home-rental market.”

Investor acquisitions of higher-end homes — residential properties sold in the upper third of pricing in a given market — grew by 19.8% year-over-year, according to Redfin. Buys of mid-priced homes increased by 12.7%. Meanwhile, the acquisition of lower-priced homes, which are typically the most competitive because they attract the largest pool of prospective buyers, fell by 9.2% year-over-year among investors.

The data shows a sharp revival of investor acquisitions of homes after falling sharply during the pandemic. Investors purchased about 33,000 homes across America in the second quarter of 2020, 39% less than the previous quarter and 46% less than the same period the year prior. Activity began to pick up in the third quarter, with roughly 49,300 homes purchased. Roughly 56,250 homes were sold to investors in the fourth quarter of 2020, constituting about $41 billion worth of investment activity — an all-time high dollar volume, according to Redfin.

Investors are snatching up a significant percentage of homes in places from Miami to Phoenix

Single-family rental companies argue that they improve the houses they purchase, give renters a chance to live in a dwelling they otherwise couldn’t afford to buy, and only own a tiny fraction of the nation’s housing inventory. Redfin’s data showed that, while that latter point may be true on a national level, investors have an outsized presence in specific markets around the country.

Investors purchased 23.8% of all the homes sold in Miami in the first quarter, according to Redfin, the highest percentage of any market in the country. In Atlanta, the second-biggest investment market, 22.2% of homes sold during the quarter were acquired by investors, followed by Jacksonville, Florida, where investors purchased 22.1% of homes, Charlotte, North Carolina, where investors bought 21.5% of homes, and Las Vegas and Phoenix, where investors acquired 19.7% of the homes sold in each city during the quarter.

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