Investors in the 2021 real estate market continued their acquisition spree through the third quarter. Much like the record appreciation recorded in the CoreLogic Home Price Index, investor activity hit peaks previously unseen in CoreLogic data in the second quarter of 2021. In June, the share of single-family purchases made by investors was 24.3%. Figure 1 shows that this was eclipsed in July, August and September which had rates of 24.6%, 25.8%, and 26.8%, respectively1.
Although the investor share has continued to grow, the level of investor purchases has stalled. Figure 2 shows the number of purchases made by investors along with the number of purchases made by non-investors. Non-investor purchases exhibit significant seasonality, making most of their purchases during the summer. Investors are typically less sensitive to the seasons, but usually buy slightly more properties in the summer. Focusing on the past year of investor purchases, the total number has dropped in the third quarter after peaking in June. Although their market share is up, whether investor activity increased in the third quarter depends on how it is defined. Given the usual seasonal trends, we can expect to see the investor share increase in winter. As we move into the spring/summer and owner-occupied purchases pick up, there will be more clarity into how long the recent investor surge will last.
Figure 3 shows that large investors (those who retain one hundred or more properties) have greatly increased their market share. Of all investor purchases made in June 2021, 24% were made by large investors. This is a 4% increase from June, a 12% yearly percentage increase, and an 8 percent increase from September 2019. In the last quarter, this appears to be coming from mid-sized (ten to ninety-nine properties) investors. Small-sized investors decreased in the first half the year but have stayed constant at around 44%.
Investors continued to move away from their historical trend to stick to the lower priced areas within MSAs. Figure 4 shows investor shares by MSA price tier2. Homes in the top and middle third of sales prices in their respective metropolitan area were purchased by investors 23% and 25% of the time in September 2021, respectively.
Instant online buyers (iBuyers) are an investor class that has gained attention in the past year. Figure 5 shows the share of all purchases made by iBuyers, and the share of investor purchases that were made by iBuyers. The market share has steadily increased to just under 2% of all purchases, and around 5% of investor purchases July through September. All iBuyers fall under the category of large investors, so around half of the large investor increase over the past year can be attributed to iBuyers.
Another widely covered investor trend is built-for-rent properties. To see what is behind the surge in investor activity, one can look at the share of investor purchases that were new construction3. Figure 6 shows that the number of investor purchases made on new construction has increased over the past year, but the rate has stayed the same, oscillating around ten percent from 2019 to present. It cannot be said that the built-for-rent model is behind the surge in investor activity seen this year.
After a decade of moving away, investors are coming back to California. The eleven MSAs with the highest investor shares for the third quarter of 2021 are shown in Figure 7. Four of these are in California, four in the South and three in the Mountain-West. These are the markets where iBuyers have focused. California was prevalent in the top investor shares at the start of the 2010s when there were many foreclosures in the wake of the Great Recession. More recently, the South and the Mountain-West have had the highest investor rates. The California rise is likely due to large investors, who seem less deterred by the high prices found in the area. Figure 4 shows the bottom eleven MSAs. Aside from New Orleans, Louisiana and Anchorage, Alaska, the bottom eleven are all located in the Northeast, which has had the lowest investment rates for over a decade.
Will investors be able to maintain high purchase share throughout the fourth quarter of 2021 and into 2022? We cannot link the surge to any single condition in the market, making this difficult to predict. However, if price growth tapers down substantially as the CoreLogic HPI Forecast projects, then other market factors will evolve too. How exactly investors will respond to such a situation is unclear.
1Using CoreLogic’s public records data, we define an investor as an entity (individual or corporate) who retained three or moreproperties simultaneously within the past 10 years or has a corporate or non-individual identifier on the deed. Examples include LLCs, CORPs, and INCs, to name a few
2Price tiers pool together all MSA sales for the month and divide them into thirds based on sales price.
3We cannot perfectly capture built-for-rent numbers as we are only looking at arms-length transactions. If the builder was also the investor, there would be no transaction when the home was completed. Alternatively, if the investor has a building company in a different name that transfers the property upon, then it is not arms-length and would also be excluded.