Real estate investors set records in Q2 2020

It might make dollars, but it doesn’t make sense for homebuyers who are competing for homes in a crazy market. We’re talking real estate investors and all-cash buyers. 

Real estate investors purchased 67,943 U.S. homes in the second quarter of 2021, the highest quarterly figure on record, according to Redfin. To break it down, investors bought a record $48.5 billion worth of homes in the second quarter. That’s up from $38.9 billion in the previous quarter and $20.9 billion a year earlier. And those homes had an average sales price of $439,600. That’s 23.7% higher than a year earlier.

Investor market share is close to pre-pandemic levels. Real estate investors bought about one of every six homes (15.9%) that were purchased in the second quarter of 2021 — just shy of the 16.1% record market share they held in the first quarter of 2020, before the pandemic triggered an economic downturn, according to Redfin.

Prime time for investors

Redfin defines an investor as any institution or business that purchases residential real estate. “Investors see soaring home prices as an opportunity,” Bokhari said. “With housing values consistently on the rise, solid returns are pretty much guaranteed—especially when you’re an investor who has access to extremely cheap debt,” says Redfin Senior Economist Sheharyar Bokhari. 

Investors binge buying single-family homes “With investors throwing money at the housing market, some homebuyers are finding it tough to compete,” Bokhari said. “Investors frequently pay with all cash, which means they often have a much higher chance of winning bidding wars than buyers who take out mortgages.”

About three-quarters (74%) of investor home purchases in the second quarter were financed with all cash — the highest level since 2018. 

So far this year, nearly one-third (30%) of overall U.S. home purchases have been paid for with all cash, according to a separate Redfin analysis. That’s up from 25.3% during all of 2020 and represents the largest share since 2014, with the rise in investor activity likely contributing to the increase.

While multifamily buildings are the most common property type purchased by investors, investor market share in this segment has declined during the pandemic. Investors bought about one-quarter (26.5%) of the multifamily properties that sold in the second quarter, down from a peak of one-third (33.3%) in 2019. 

Meanwhile, investor market share of single-family homes and condos is on the rise after dropping during the pandemic. Investors purchased 16.1% of single-family homes and 15.1% of condos that sold in the second quarter, up from a pandemic low of 9.4% and 12.4%, respectively, a year earlier.

Investors Have the Highest Market Share in Phoenix and Miami

In Phoenix, almost one-quarter (24.5%) of homes that sold in the second quarter were purchased by investors—the highest share of the 41 U.S. metropolitan areas Redfin analyzed. Next came Miami (24.2%), Atlanta (23.6%), Charlotte, NC (22.8%) and Las Vegas (22.8%).

In recent years, investors and individual homebuyers alike have crowded into mid-sized cities that are more affordable and offer more space than major hubs like San Francisco and New York. The pandemic accelerated this trend, with so many Americans suddenly able to work from anywhere. Phoenix was the most popular migration destination in the second quarter for users looking to move to a different metro. Miami and Las Vegas were also in the top five.

“Home prices in Phoenix have been surging, which means a lot of long-time residents have been priced out of the market and need to rent. Investors are moving in, buying up homes and turning them into rentals,” said Kristi Penrod, a designated broker with Redfin in Phoenix. “Phoenix still feels relatively inexpensive to a lot of investors—especially those who have been doing business in pricier cities like San Francisco or New York.”

Penrod continued: “Housing inventory is also improving, with more homeowners now putting their properties up for sale. Investors see this as a window of opportunity because it means they’ll deal with fewer bidding wars and are less likely to have to offer above the asking price.”

In Providence, RI, just 6.4% of homes that sold in the second quarter were bought by investors—a lower share than any other metro in this analysis. It was followed by Warren, MI (6.7%), Washington, D.C. (6.9%), Virginia Beach, VA (7.7%) and Montgomery County, PA (7.8%).

An active market filled with all-cash investors will continue to frustrate homebuyers trying to compete.