Wall Street vs. Main Street: 10 Cities Where First-Time Buyers Are Battling Investors for the Best Homes
Nov 9, 2021
In today’s hot housing market, homebuyers aren’t just attempting to outbid that friendly couple they spotted at the open house admiring the kitchen cabinetry. No, they’re also gearing up to compete with substantially bigger fish: an influx of deep-pocketed real estate investors who are vying for the same modest, single-family homes in the suburbs—and sometimes coming to the party with all-cash offers.
As competitions go, this one isn’t exactly a fair fight.
Real estate investors have been buying up homes at a feverish pace during the COVID-19 pandemic, hoping to cash in on low mortgage rates and skyrocketing rents. They’re flipping single-family homes, townhouses, and condos for a profit or turning them into rentals. The share of investors in the market hit the highest level since at least 2015, according to an analysis of deed records by Realtor.com®.
Furthermore, they’re affecting some markets far more than others. We decided to look at where investors are scooping up the most homes in the U.S. right now.
In these places, the mass of investors is further driving up prices and edging out first-time and other buyers who can’t compete with hefty offers from Wall Street hedge funds, well-to-do mom and pop investors, and real estate investment companies.
“Investors are particularly attracted to affordably priced homes, the very homes that would normally be appealing to first-time buyers,” says Realtor.com Manager of Economic Research George Ratiu.
“Investors who generally come with cash have a significant advantage over first-timers who typically rely on a mortgage. In a market with few homes for sale already, this prices out many buyers.”
“Homeownership either gets pushed out of reach or delayed for a lot of Americans who can’t compete with investors even though otherwise they would be ready and qualified for it,” adds Ratiu.
While investors don’t make up a huge portion of the market, they’re growing—particularly in the Midwest and Sun Belt where home prices are still relatively affordable and rental prices are rising. Investors made up 5.5% of all home purchases in the first seven months of 2021.
“Prior to the Great Recession, a lot of investors were in the flipping business. Now you have more professional investors acquiring properties for possible rentals,” says Columbia University real estate professor Tomasz Piskorski. “This makes sense given the expected demand for suburban housing. Not every millennial can afford a down payment, not every millennial wants to be tied down.”
While real estate investors may be the bête noire of frustrated first-time homebuyers, they can actually have an overall positive impact on real estate markets. Flippers tend to buy fixer-uppers and rehab them, and then put them back on the market, which helps update the nation’s aging housing stock. Other investors may sell the homes they’re renting out, adding much-needed inventory to the market.
To determine where investors are purchasing the highest share of homes, the Realtor.com data team pored over thousands of deed records in the country’s 50 largest metropolitan areas in July, the latest data available. We looked at any type of home (single-family, condos, and townhouses) that was bought by an absentee owner and had a buyer’s name that included some variation of LLP, LP, LLC, GP, or Trust. That usually means the buyer is a large firm such as American Homes 4 Rent, a California company that owns thousands of homes in nearly two dozen states.
Because of this, individual investors (e.g., many mom and pops purchasing a unit here and there to rent out or put on Airbnb) were not included in the analysis. (About 41% of rental units were owned by individual investors, according to census estimates.) For geographic diversity, we limited this list to one metro per state.
See full list of states here.
All of this is contributing to an inventory shortage of homes even when demand is still up. According to the article below:
“With so many more buyers in the market than homes available for sale, homebuyers are frequently getting into bidding wars for the houses they want to purchase.”
How Sellers Win when Housing Inventory is Low
Original article by Keeping Current Matters
In today’s housing market, the number of homes for sale is much lower than the strong buyer demand. As a result, homeowners ready to sell have a significant advantage. Here are three ways today’s low inventory will set you up for a win when you sell this season.
1. Higher Prices
With so many more buyers in the market than homes available for sale, homebuyers are frequently getting into bidding wars for the houses they want to purchase. According to the latest data from the National Association of Realtors (NAR), homes are receiving an average of 3.7 offers in today’s market. This buyer competition drives home prices up. As a seller, this certainly works to your advantage, potentially netting you more for your house when you close the deal.
2. Greater Return on Your Investment
Rising prices mean homes are also gaining value, which increases the equity you have in your home. In the latest Homeowner Equity Insights Report, CoreLogic explains:
“In the second quarter of 2021, the average homeowner gained approximately $51,500 in equity during the past year.”
This year-over-year growth in equity gives you the ability to sell your house and then put that money toward a down payment on your next home, or to keep it as extra savings.
3. Better Terms
In a sellers’ market like we have today, you’re in the driver’s seat if you make a move. You have the power to sell on your terms, and buyers are more likely to work with you if it means they can finally land their dream home.
So, is low housing inventory a big deal?
Yes, especially if you want to sell on your terms. Moving now while inventory is so low is key to maximizing your opportunities.
Bottom Line
If you’re interested in taking advantage of the current sellers’ market, contact a local real estate professional today to determine your best move.
