The US housing market was caught by surprise when real estate investors bought a record high 18.4% of US homes sold in the last quarter of 2021. The figure represents a huge jump from Q4 2020’s 12.6%. What does it mean for the national real estate industry as a whole?
Investor Demand Is Stronger than Ever
Despite the global health and economic crises, the investor market grew stronger over the past two years. Real estate investors quickly saw the rapid growth in housing demand at the pandemic’s onset as people scampered to look for bigger houses for remote work and online schooling. Investors were aggressively purchasing investment properties left and right, buying low and selling high. They were chasing rising prices because rental rates were also going through the roof.
Investor Market Share Rose to a Record 18.4% in Q4 2021
Throughout 2021, investor purchases constantly jumped from month to month as property prices rapidly increased (up by 15% year over year in December). Because of the sudden rise in housing demand and prices, the average monthly rental rate also inevitably went up by 14% in December.
Although Q4 2021 saw the investors’ market share reach a record 18.4% or 80,293 homes, the number of houses bought dropped a bit compared to the third-quarter peak of 88,288 homes sold. It’s still a far cry from pre-pandemic levels, though, and a 43.9% improvement from the previous year. The slight drop in sales could be attributed to the housing-supply crunch, which constrained property sales across the board, including real estate investors. Seasonality is also a factor in the slight decrease as sales normally go down during the last quarter of the year, even without the pandemic. For instance, in 2019, the number of homes investors bought went down by 4% between Q3 and Q4.
According to Redfin economist Sheharyar Bokhari, real estate investors are making it harder for regular folks to buy homes as they are taking up a record share of the market today. The supply shortage created by the investors’ massive power purchasing is benefiting landlords all over the country as folks who cannot compete with investors are forced to rent homes. People who buy undervalued properties with the intent of fixing and flipping them are practically living the dream as home prices continue to rise.
It’s hard for regular people to compete with investors who are able to pay for properties in cash. A little over three-quarters (75.3%) of investor home purchases in Q4 2021 were all paid for in cash. The rising mortgages aren’t even a thorn on the investors’ side as they rarely use mortgages anyway. If property prices slow down sometime soon, chances are investor demand will also go down as rental rates are also bound to decline.
Just to give you an idea of how much money we’re talking about, around $49.9 billion worth of investment properties were bought by investors in the last quarter of 2021. The previous year’s total was around $35 billion. The average price of a typical property that investors bought in Q4 2021 was $432,971, an increase of almost 10% from a year earlier.
Low and Mid-Priced Properties Were the Popular Investments of Choice
Real estate investors are in the business to buy low and sell high. For such reason, low-priced properties remain their top choices for investment properties. Around 37% of all purchases made in 2021’s fourth quarter came from the low-priced category. The said figure, however, is a record low, dropping from the previous year’s 44.5%.
Hot on its heels are mid-priced properties, which accounted for around 32.3% of the total Q4 2021 house sales. The improvement from the previous year’s 24.1% is indicative of the growing popularity of the mid-priced property segment among real estate investors.
High-priced homes, on the other hand, represented 30.7% of the investor market – slightly up from 30% from Q3 2021 but a tad lower than 31.4% from the previous year.
Bokhari said that lower-priced homes, unsurprisingly, remain a favorite among investors, but they are starting to also go after 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.”
Single-family homes make up roughly three quarters (74.8%) of investor purchases from 2021’s fourth quarter, up from 72.2% a year ago and nearly flat with 2021 third quarter’s 75%. Condos and co-ops come in next at 15.4% of investor purchases, a slight decline from the previous year’s 17.8% and Q3’s 16.1%. Townhouses make up 6%, a slight improvement from 5.3% a year earlier. Lastly, multifamily properties cover 3.8% of the investor market share, dropping from the previous year’s 4.7%.
The Biggest Market Share: Atlanta, Charlotte, and Jacksonville
Investors bought around 32.7% of the Atlanta GA housing market in Q4 2021, by far the largest, with Charlotte NC investment properties coming in at a very close second with 32.1%. The Jacksonville real estate market rounds up the top three investor markets in the US, with 29.8% of its house sales going to real estate investors.
According to Redfin’s data, the three metropolitan areas’ median property prices were under the national median of $383,000, which makes them all very attractive and irresistible to investors from all over the country. Atlanta and Charlotte are also among the most popular locations for Americans moving from one metro to another.
Interestingly, Jacksonville FL more than doubled its share of the investor market with a 157% year-over-year rise. Charlotte saw a 92.8% year-over-year growth, while Atlanta got a nearly three-quarter increase of 74.4%.
The Bottom Line
Real estate investors are taking over the housing market across the country. Unless property prices start to slow down and hit a plateau, investor demand is expected to continue growing.
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