The demand for housing in this country keeps hitting new highs and lows -- in prices and time on market, for instance, for residential real estate.
Low interest rates and pandemic-driven desires for more space and an escape, for some, from city living are cited as reasons for these spikes, which also have seen rental rates rise for the same reasons and because affordability has become an issue for many would-be buyers.
There’s also another factor feeding this frenzy: institutional investors. We’ve been regularly sharing with Millionacres readers the news and impact of big bucks pouring into the market, especially for single-family rentals, an area of particular interest to many of our real estate investor readers who buy and manage their own rental properties.
If it seems like the competition for good deals just keeps getting stiffer, you’re not imagining things. Redfin reports that investor home purchases have hit a new record, with nearly $50 billion in such activity in the second quarter.
An investor by any other name … has a lot of money
For this report, Redfin defines “investor” as any business or institution that buys residential real estate, and the listing service was using records dating back to 2000. The listing service’s report found that 2Q21 investment buys totaled a record $48.5 billion, up nearly 25% from $38.9 billion in 1Q21 and a resounding 132.1% more than in 2Q20, when COVID-19 shutdowns were at their peak.
Redfin says the typical purchase price for 2Q21 -- April to June this year -- was $439,600. That’s 23.7% more than during the same months in 2020 and reflects purchases of multifamily, condos, and single-family properties alike.
“Multifamily properties remain the most popular among investors, but single-family homes and condos are gaining steam,” the report says. That’s certainly been true of late, including big buys that will show up in 3Q21 reports that may well show similar momentum.
For instance, major SFR buys and plans for more have been announced by players such as Fundrise, the real estate investment trust (REIT) Invitation Homes in partnership with homebuilder PulteGroup, and Blackstone Group.
Investor cash buys about a quarter of the market in these metros
As for individual markets, Redfin says, about a quarter of homes (24.5%) sold in 2Q21 in Phoenix were to investors. That’s the highest share among the 41 metro areas Redfin analyzed, followed closely by Miami (24.2%), Atlanta (23.6%), Charlotte, North Carolina, (22.8%) and Las Vegas (22.8%).
And regardless of where you’re trying to compete in those major metros, prepare to bring cash. Redfin says 74% of 2Q21 investor deals were in cash, and about 30% of all U.S. home purchases so far this year have been in cash.
“With investors throwing money at the housing market, some homebuyers are finding it tough to compete,” Redfin senior economist Sheharyar Bokhari said in the report. “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.”
So much for being pre-approved, eh?
The Millionacres bottom line
Bokhari also says this: “Investors see soaring home prices as an opportunity. 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.”
While the days of easily finding relatively cheap homes -- especially new builds – may be behind us (unless things drastically change), opportunity still exists for investors whose strategies range from finding the right flip to simply plunking down money in proven residential REITs or other real estate stocks. You can be part of the institutional buys, after all.
You just need to decide what works for you, be able and willing to change when opportunity and reality sets in, and then go your own way.