Real estate investors spent a record $63.6 billion to purchase homes in the third quarter, up 78% from a year earlier, with an intense housing shortage fueling their returns, according to a Redfin report published on Monday.
In total, investors acquired 90,215 homes in the third quarter, an 80.2% increase year-over-year. Redfin defines an investor as any institution or business that purchases residential real estate.
Sheharyar Bokhari, a senior economist at Redfin, said that increasing home prices had created opportunities for investors to reap big profits. “Those same factors have pushed more Americans to rent, which also creates opportunities for investors,” he noted in a statement.
In September, median home sale prices increased 13.9% year-over-year. Meanwhile, average monthly rents rose 10.7% in the same period, the fastest growth in at least two years.
According to the report, it has been challenging for many individual homebuyers to compete with cash-rich real estate investors. In the third quarter, investors purchased more than three-quarters of homes with all cash.
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But the expectation is that the situation may be better for non-investors homebuyers as the housing market has started to cool down. “Bidding wars are on the decline, and if home-price growth continues to ease, we may see investors slow their roll,” said Bokhari.
In total, real estate investors represented 18.2% of the U.S. homes purchased in the third quarter, seven basis points higher than a year earlier, Redfin’s analysis found.
But their share increased to 32% in Atlanta (GA), 31.7% in Phoenix (AZ), and 31.5% in Charlotte (NC). However, in Providence (RI), they represented just 5.4% of the homes sold in the third quarter, a lower share than any other metro area included in Redfin’s report.
The typical home that real estate investors purchased in the third quarter cost $438,770, 5.3% higher than a year earlier. Single-family homes represented 74.4% of the total, followed by condos/co-ops (16.9%), townhouses (5.4%), and multifamily housing (3.4%).
The report also shows that 65.2% of the houses investors bought had high heat risk, 64.3% had high storm risk, and 27.1% faced high drought risk. Investors were more likely than non-investors to purchase homes in these situations.
Though there’s been much hand-wringing over the impact institutional investors play in the housing market, the typical investor is usually small and local. Institutional investors are estimated to own roughly 2% of U.S. single-family homes, the vast majority of which are rentals.
Historically high housing prices and large down payment requirements are forcing more people to rent. And rent prices are up, which has led to deep-pocketed investors building single-family homes as rentals. Close to 100,000 built-to-rent homes will have started construction this year, according to Brad Hunter, founder of consulting firm Hunter Housing Economics, the Wall Street Journal reported last week.