Are Real Estate Investors Buying Too Many Homes? Here’s What the Numbers Say

September 20, 2019

One thing is for sure, real estate investors are buying more homes than ever before. According to a special report released by Corelogic in June, the investment rate in the U.S. housing market reached an all-time high at 11.3% since they started tracking the data in 1999.

Is that too many? It depends on who you are asking.

First-Time Home Buyers

First time home buyers are feeling the impact of competing with investors for “starter homes”. According to the numbers, one in five homes priced in the bottom third price range in 2018 were purchased by investors. These are the same homes first time buyers are looking for, and they just don’t have the means to compete with investors who can pay, in cash, over the asking price with no conditions.

An article in the Wall Street Journal reporting on investors buying more homes talks about how some first-time buyers in New York and San Francisco in particular, are completely knocked out of the market by investors competing to buy homes in the market where they live. This is resulting in them renting their personal residence, and buying investment properties in cheaper markets.

Small Investors

Responsible for much of the increase in homebuyer activity that we’re seeing is actually smaller investors. Sixty-percent of all investor-purchased homes in 2018 were purchased by small investors – those who purchased 10 or fewer homes between 1999 and 2018 – up from 48% in 2013.

This is largely thanks in part to the ease of buying property online. Small investors can buy anywhere without having to visit the physical location. This allows them to find homes in real estate markets with high rents and buy property that is virtually guaranteed to generate income.

Renters

Those who would like to buy but are unable to because the prices may be too high, or they don’t qualify for a mortgage on a single-family home in a nice neighborhood may be benefiting from the surge in investor activity. While many investors are interested in buying homes to fix up and resell quickly at a profit (also known as flipping), many are also interested in providing affordable housing in nice neighborhoods.

Responsible owners can have a positive impact on communities by broadening access to single-family homes in safe neighborhoods, with good schools. This can increase labor mobility by providing workers with rental options in better locations, and not locking homeowners into buying in markets that are far from quality jobs. 

The increase in real estate investors purchasing starter homes is definitely the most detrimental to first-time buyers, and the most beneficial to small investors and potentially renters.

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