Investors banking on growing home and rental prices for high returns bought 18.2% of all homes purchased in Q3 2021, up from 16.1% in Q2 and 11.2% year-over-year (YOY), according to a new Redfin report.
Real-estate investors purchased a record 90,215 homes, totaling nearly $64 billion and up 80.2% YOY, the second-largest increase on record. Single-family homes made up nearly three-quarters of those purchases, an all-time high, while low-priced properties accounted for only 36%.
The typical home purchased by investors cost $438,770. More than 75% of homes purchased by investors were paid for completely in cash.
“Increasing home prices fueled by an intense housing shortage have created opportunities for investors to reap big profits,” said Redfin Senior Economist Sheharyar Bokhari.
“Those same factors have pushed more Americans to rent, which also creates opportunities for investors because investors typically turn the homes they purchase into rentals and can now charge higher rents.”
Investors bought more mid-priced homes than low-priced homes, suggesting confidence that they will be able to secure large gains on their investments as affluent renters and buyers fleeing Covid-affected cities seek out new property.
Markets with high investment activity offered more space in a less expensive metro, such as Phoenix and Miami. However, these markets also tend to face increased risks from climate change, including heat and floods or storms. These markets have seen increased migration despite their climate risks. As a result, investors were more likely than non-investors to purchase homes with high heat, drought, and flood risk.
Rental property trends have been under the microscope as the housing affordability crisis continues to evolve. Zillow has come under fire for selling 2,000 homes to an investment company after closing its iBuying arm rather than putting them on the traditional market. Notably, the report stressed that iBuyers represented only a small portion of home purchases despite a recent uptick in activity.
Potential homebuyers have reported exhaustion from a year of being outbid by cash buyers. First-time homebuyers have been particularly affected, facing competition from both investors and older buyers with equity to tap on their current homes.
“With cash-rich investors taking the housing market by storm, many individual homebuyers have found it tough to compete,” Bokhari said. “The good news for those buyers is that the housing market has started to cool. Bidding wars are on the decline, and if home-price growth continues to ease, we may see investors slow their roll.”
The supply of affordable homes also increased in Q3, which could open the path for buyers who have struggled to find a home during the pandemic.