Small Investors Buying More New Homes Than Institutional Investors

The market for investors purchasing new homes is overall slow – but working-class Americans are leading the way, according to an activity rating by John Burns Research & Consulting. About 40% of builders reported no investor sales over the past 90 days.

The study, which leveraged insights from national surveys of homebuilders and real estate agents, found that nearly two-thirds of homebuilders sold properties to investors between February and April, primarily to mom-and-pop investors with between one and nine investment properties or second-home buyers. Of properties sold to investors, 69% went to mom-and-pop investors, 27% were sold to second or vacation-home buyers, and only 4% were sold to institutional investors with 10 or more investment properties.

The Northeast had a larger percentage of institutional investors purchasing properties at 20%, while vacation and second-home purchases dominated investment sales in the Northwest, Southern California and Florida.

Among homebuilders, who sold to investors, 28% characterized sales volume as normal, while 26% said sales have been slow to very slow in the past 90 days. Of home builders in Southern California, 18% reported strong investor sales volume while 6% of Florida builders reported very slow investor sales volume and 29% reported slow sales.

Meanwhile, 44% of real estate agents reported slow to very slow investor activity and their regional observations of stronger investor activity in California and weaker activity in Florida aligned closely with homebuilder sentiment.

Builders reported selling to investors at less than a 1% discount compared to retail pricing, though Northern California and Texas builders reported slightly steeper discounts at closer to 2%, the report found.

While 70% of new listings over the past 90 days were primary residences, according to agents, listings from investors and estates have increased over the past year, particularly in Florida and California. Investor listings accounted for 9% of the total in November 2023. That had risen to 11% by Spring 2024. Most of these listings came from mom-and-pop investors and fix-and-flip operators. Institutional investor listings totaled only 1% nationwide, ranging from no institutional investor listings in Northern California to 2% in the Southeast, the report said.

Investors represented 25% of combined new and resale residential transactions, compared with 12% in 2002.