Investors Buy Homes in Record Numbers, Push Up Prices

Man Standing in Moving Van

Real estate investors snatched up homes in record numbers this spring, mostly with cash, Redfin reported Thursday. And that’s pushing prices up, individual buyers out, and some would-be homeowners to rentals.

Key Takeaways

  • Real estate investors purchased a record number of homes in the second quarter, according to a Redfin study.
  • They mostly paid cash, likely outbidding individual homebuyers and adding fuel to an already hot market. 
  • This creates a vicious circle in which priced-out buyers turn to rentals, which are often owned by investors, and push the cost of housing still higher.

Investors bought 67,943 homes in the U.S. in the second quarter of 2021, up 15.1% from the first quarter and the highest number since real estate broker Redfin began collecting data in 2000. They spent $48.5 billion on those homes, which included multifamily dwellings, single-family homes, and condos, for an average price of $439,600. Home prices have surged this year, and the amount investors spent per home was 23.7% higher than a year ago.

The market share of homes bought by investors in the second quarter was 15.9%, or about one of every six homes purchased. That’s just below the record of 16.1% in the first quarter of 2020, just before the economic downturn. And these buyers are interested not just in flipping houses for sale. 

“Investors are also taking advantage of surging demand in the rental market. With so many Americans priced out of homeownership, investors can turn an easy profit by buying up properties and renting them out,” Redfin Senior Economist Sheharyar Bokhari said in the report.

When the economic downturn struck last year, investors shied away from buying houses. Investor purchases declined for three consecutive quarters, including one quarter when buying by investors slumped 46%. But as mortgage rates dropped and individual homebuyers working from home sought more space, the real estate market caught fire. Eventually investors tiptoed back in, and investor purchases in the first quarter of 2021 rose 2.7% year over year. 

Now, flush with cash and seeing an opportunity for hefty profits in home appreciation and rental markets, “investors are back with a vengeance,” said Redfin Chief Economist Daryl Fairweather.

Vicious Circle

Redfin estimated that 74% of investor purchases in the second quarter were made with cash, the highest level since 2018. Year to date, cash purchases were 30% of all U.S. home purchases, which is the highest share since 2014 and likely reflects the increase in investor activity.

“In bidding wars, it’s hard to compete with all cash offers,” Fairweather said. “All cash has a huge advantage” over buyers who take out mortgages.

This creates a vicious circle, Fairweather said. Investors snap up homes, usually in all-cash deals, adding fuel to an already hot housing market. Higher prices push out individual homebuyers, some of whom turn to the rental market—increasingly dominated by investors— and push rental prices higher.

Although rental prices have not yet appreciated as much as home prices, Fairweather warned that the recent jump in rents may be only the beginning. “I expect rental prices to keep rising for another year,” she said. She added that there is some good news: The work-from-home trend means people can expand their search. “The further you look away from city centers, the prices may be lower and it can be a win,” Fairweather said.

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