Investors Are Buying a Record Share of US Homes

Homeownership continues to be a popular investment, especially for investor groups.

Real estate investors bought a record 18.4% of the homes that were sold in the U.S. during the fourth quarter of 2021, according to a new report from real estate brokerage Redfin. That’s up from 12.6% a year earlier and a revised rate of 17.4% in the third quarter.

Although investor market share hit a record in the fourth quarter, the number of homes bought by investors declined 9.1% from the third-quarter peak—but it’s up significantly from pre-pandemic levels. 

Investors bought 80,293 homes in the fourth quarter, up 43.9% from a year earlier. The housing-supply crunch constrained home sales for all homebuyers, including investors. The drop from the third quarter is also due partly to seasonality.

The number of homes bought by investors jumped throughout 2021 as home prices rose rapidly–they were up 15% year over year in December–alongside a shortage of homes for sale. Investors are taking advantage of intense demand for rentals and increasing prices, with the average monthly rental payment for a new lease up 14% in December.

Just over three-quarters (75.3%) of investor home purchases were paid for with all cash in the fourth quarter.

Investors’ Biggest Market Share: Atlanta, Charlotte, Jacksonville

Investors had the biggest market share in relatively affordable Sun Belt metros. In Atlanta, 32.7% of homes that sold in the fourth quarter were bought by investors, the biggest share of the 40 U.S. metros in Redfin’s analysis, and in Charlotte it was 32.1%. They’re followed by Jacksonville, Fla. (29.8%), Las Vegas (29.2%) and Phoenix (28.4%).

Investor purchases more than doubled from last year in Jacksonville, with a 157% year-over-year increase, the biggest jump of the metros in this analysis. It’s followed by Las Vegas (105.5% year-over-year increase), Charlotte (92.8%), Baltimore (83%), and Atlanta (74.4%). Investor purchases increased from the year before in all but four of the metros in this analysis (Seattle; Nassau County, N.Y.; Newark, N.J.; and Warren, Mich.).

Just over 6% of Providence, R.I., homes that sold in the third quarter were bought by investors, the smallest share of the metros in this analysis. It’s followed by Washington, D.C. (7.8%), Warren, Mich. (8.2%), Virginia Beach (8.6%) and Montgomery County, Pa. (8.6%).

Single-family homes made up about three-quarters (74.8%) of investor purchases in the fourth quarter. That’s near the highest level on record, essentially tied with the third quarter (75%), and up from 72.2% a year before.

iBuyer Sales Doubled in 2021

This follows the trend GlobeSt reported recently based on CoreLogic’s report that iBuyer (or Instant Buyer) transactions doubled in 2021 compared to pre-pandemic levels.

As CoreLogic’s recent analysis showed, investor purchases accounted for about a quarter (26%) of all home purchases in Q3 2021, up from 16% seen in 2019.

iBuyers use technology to buy and resell homes quickly. When selling a home to an iBuyer, the seller gets a cash offer for the home “as is” and avoids the uncertainty of knowing when and if their home will sell and if repairs are needed.

While iBuyers have been around since about 2015, in 2021 their purchase activity doubled compared to 2019 levels and currently account for about 1% of total home purchases.

Investors Chasing Rising Prices

While record-high home prices are problematic for individual homebuyers, they’re one reason why investor demand is stronger than ever, Redfin economist Sheharyar Bokhari said.

“Investors are chasing rising prices because rental payments are also skyrocketing, incentivizing investors who plan to rent out the homes they buy,” Bokhari said. “The supply shortage is also an advantage for landlords, as many people who can’t find a home to buy are forced to rent instead. Plus, investors who ‘flip’ homes see potential to turn a big profit as home prices soar.”

“Investors buying up a record share of for-sale homes is one factor making this market difficult for regular homebuyers,” Bokhari continued. “It’s tough to compete with all-cash offers, and rising mortgage rates have a smaller impact on investors because they often don’t use mortgages at all. If home-price growth slows in the coming year, investor demand may cool down because rental price growth will slow, too.”

In dollar terms, investors bought $49.9 billion worth of homes in the fourth quarter, up from $35 billion a year earlier. The typical home investors purchased sold for $432,971, up nearly 10% from a year earlier.

Mid-priced homes are gaining popularity with investors, representing 32.3% of their purchases in the fourth quarter, a record high and up from 24.1% a year earlier.

Low-priced homes are still more popular than more expensive options for investors, but not by much. Low-priced homes made up 37% of investor purchases in the fourth quarter, a record low and down from 44.5% a year earlier.

Meanwhile, high-priced homes represented 30.7% of investor purchases, up slightly from 30% in the third quarter but down slightly from 31.4% a year earlier.

“Lower price points are still popular with investors, and I don’t expect that to change. One of their main goals is still to buy low and sell high,” Bokhari said. “But investors are also increasingly interested in higher-priced properties, partly because there’s a lack of low-priced inventory and partly because they’re betting on rising demand for high-end rentals.”