Institutional investors have been making a comeback in 2021. During the second quarter, investors purchased 67,943 U.S. homes, the highest figure on record (since at least 2000), according to new data released on Thursday by Redfin.
For this report, Redfin defined “investor” as “any institution or business that purchases residential real estate.”
That number of second-quarter investor purchases is up 15.1 percent from the first quarter of 2021, and up 106.7 percent year over year at the height of pandemic shutdowns.
Those purchases translate into a new high of investor purchases of $48.5 billion worth of homes, up from $38.9 billion the previous quarter and up from $38.9 billion the year before.
As home prices have continued to climb amid soaring buyer demand, low inventory, and high materials costs, the typical home purchased by investors in the second quarter cost $439,600, 23.7 percent higher than the year before.
Soaring investor purchasing has enabled investors to make a near return to the market share they held prior to the start of the pandemic. Investors bought 15.9 percent of U.S. homes purchased during the second quarter, down just slightly from the 16.1 percent share of homes they purchased during the first quarter of 2020.
Redfin economists say climbing home prices are a big factor in investors’ return to the market in such high numbers.
“Investors see soaring home prices as an opportunity,” Redfin Senior Economist Sheharyar Bokhari said in the report. “With housing values consistently on the rise, solid returns are pretty much guaranteed — especially when you’re an investor who has access to extremely cheap debt. 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.”
Unfortunately, the surge in investor activity is also making it more challenging for lower income or first-time homebuyers to enter the market, since investors most often purchase lower-priced homes. About one out of every five low-priced homes that sold during the second quarter was purchased by an investor. Investors only purchased 13.8 percent of mid-priced homes and 13.5 percent of high-priced homes during the same period, by contrast.
“Investors frequently pay with all cash, which means they often have a much higher chance of winning bidding wars than buyers who take out mortgages,” Bokhari added.
For instance, 74 percent of investor purchases were financed with cash during the second quarter, the highest share seen since 2018.
Historically, investors have most often purchased multifamily buildings, but during the pandemic, they seem to have shifted their focus toward single-family homes and condos, according to Redfin’s data.
Investors purchased 26.5 percent of multifamily properties sold during the second quarter, down from a high of 33.3 percent of all multifamily properties purchased in 2019. However, investor share of all single-family homes and condos purchased has been gradually increasing — investors bought 16.1 percent of all single-family homes and 15.1 percent of all condos sold during the second quarter, compared to 9.4 percent and 12.4 percent, respectively, the year before.
The top five markets where investors purchased the greatest share of homes during the second quarter include Phoenix (24.5 percent of homes sold), Miami (24.2 percent), Atlanta (23.6 percent), Charlotte (22.8 percent) and Las Vegas (22.8 percent).
Those five mid-sized cities are more affordable hubs that have also grown in popularity within individual homebuyers during the course of the pandemic, with working remotely now more attainable for many workers. Phoenix, for instance, was the most popular destination for Redfin.com users looking to move out of their current city during the second quarter.
“Home prices in Phoenix have been surging, which means a lot of long-time residents have been priced out of the market and need to rent,” Kristi Penrod, a Redfin broker based in Phoenix, said in the report. “Investors are moving in, buying up homes and turning them into rentals. Phoenix still feels relatively inexpensive to a lot of investors — especially those who have been doing business in pricier cities like San Francisco or New York.”
By contrast, Providence, Rhode Island, is the metro that saw the fewest number of investor home purchases during the second quarter at just 6.4 percent of all home sold. Warren, Michigan (6.7 percent); Washington, D.C. (6.9 percent); Virginia Beach, Virginia (7.7 percent); and Montgomery County, Pennsylvania (7.8 percent) were also among the top metro areas with the fewest investor home purchases during this quarter.