Investor Homebuying Activity Reaches Historic Heights

Economic Outlook: July 2019

By Ralph McLaughlin Housing Affordability, Real Estate

Investor homebuying in 2018 was the highest on record, with investors snapping up over 11% of homes. However, this increase isn’t from big institutional buyers, but rather from smaller investors getting back into the game. What’s more, these investors appear to be focusing their efforts on the starter-home market, potentially making a more challenging buying environment than anytime over the past two decades.

U.S. Investor Homebuying Rates: 1999 - 2018

Such “mom-and-pop” investors grew from 48% of all investor-purchased homes in 2013 to more than 60% in 2018. While their larger counterparts doubled their activity between 2000 and 2013. they have pulled back since the foreclosure crisis came to an end and now sit at just 15.8% of purchases.

We also found investors are increasingly buying starter homes. The share of starter homes purchased by investors peaked at over 20% in last two years. These rates are 2-3 times the investor purchasing rates of middle upper-tier homes that also peaked in 2018 at 7.8% and 6.3%, respectively.

U.S. Investor Homebuying Rates by Investor Size: 1999 - 2018

Why are investors buying homes at high rates in some markets and lower rates in others? Simply put, investors are attracted to markets where rents are relatively high compared to purchase prices. This called a cap rate, and it is highly correlated with the share of investor activity across the largest 100 markets.

U.S. Investor Homebuying Rates: 1999 - 2018

Finally, we found a moderate correlation between the change in investor activity since the housing market bottom and an increase in market velocity over the same period. More specifically, markets that witnessed a larger increase in the share of investors also saw their market heat up. While an uptick in investors into a market perhaps increases competition and lowers supply, the opposite is also possible: markets with tightening supply could draw investors in as they perceive such markets to be safer bets than those with more plentiful supply. Either way, it’s a truism that homebuyers today are more likely to cross paths with investors during an open house than at any other time in the past two decades.

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