Wall Street, Institutional Investors Purchase U.S. Homes at Record Levels in 2021

Investors bought up $49 billion worth of homes in Q2, surging property prices further upward.

According to real estate broker Redfin, real estate investors purchased 67,943 U.S. homes in the second quarter of 2021, the highest quarterly figure on record.

That’s up 15.1% from the prior quarter, and up 106.7% from the second quarter of 2020, when activity in the housing market was stalled due to pandemic restrictions.

In dollar terms, investors bought a record $48.5 billion worth of homes in the second quarter, up from $38.9 billion in the prior quarter and $20.9 billion a year earlier. The typical home they purchased cost $439,600 — 23.7% higher than a year earlier — amid surging housing prices.

Redfin defines an investor as any institution or business that purchases residential real estate. Any “records” referenced in this release date back to the year 2000.

Investor market share has nearly returned to pre-pandemic levels. 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.

“Investors see soaring home prices as an opportunity,” said Redfin Senior Economist Sheharyar Bokhari. “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.”

Bokhari continued, “Investors are also taking advantage of surging demand in the rental market. With so many Americans priced out of homeownership, investors can turn an easy profit by buying up properties and renting them out.”

The jump in activity comes after investors pressed pause on home purchases last year amid economic uncertainty, pandemic shutdowns and a soft rental market.

“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.

Investors Are Snapping Up More Single-Family Homes and Condos

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.

Single-family homes have been a hot commodity during the pandemic as house hunters have prioritized space and privacy over short commute times and proximity to cities. And now, with Americans returning to the office and single-family home prices through the roof, demand for condos is on the rise after dropping during the pandemic.

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 Redfin.com users looking to move to a different metro. Miami and Las Vegas were also in the top five.

Written by Michael Gerrity