Buying a home — often viewed as a cornerstone of the American dream — is getting harder to afford in the U.S. The reasons why are complex, a perfect storm of rising interest rates and high housing prices have priced many people out of the market. But there are other factors at play, including record-low inventory2 and competition from investors, who purchase homes in cash about 75% of the time.
An influx of investors — including Wall Street — entered the housing market during the pandemic, drawn in by low mortgage rates, easy access to loans and enticing home appreciation.
It’s now clear that not only did investors, including bigwigs like Blackstone and iBuyers — which make instant, cash offers online — dabble in the housing market during the pandemic, but their participation may have been instrumental in driving up prices and making it harder for the average American to achieve homeownership.
Big Investors Doubled Their Share of Home Purchases
Investors range in size from small to large — spanning the space of mom-and-pop shops renting out a couple of vacation rentals to Wall Street giants with hundreds or thousands of units. Most investor home purchases (74%) in September 2021 were made by those with portfolios of less than 100 properties, but the gap is closing. Mega investors significantly expanded their scope in recent months, such that they’ve had a major impact on the market.
According to Daniel McCue, a senior research associate at the Harvard Joint Center for Housing Studies, “Adding to the pressure on prices, investors moved aggressively into the single-family market over the past year, buying up moderately priced homes either to convert to rental or upgrade for resale.”7 In “The State of the Nation’s Housing 2022,” a report by the Joint Center for Housing Studies of Harvard University, it’s further noted:
“CoreLogic reports that the investor share of single-family homes sold in the first quarter of 2022 hit 28 percent, well above the 19 percent share a year earlier and the 16 percent share averaged in 2017–2019. Not surprisingly, investors focused on markets with rapid home price appreciation …”
However, investors with large portfolios are increasingly making their mark. They nearly doubled their share of purchases from September 2020 to September 2021, reducing the supply of available housing — particularly in lower-priced markets — and driving up prices further. According to the report:
“Investors have moved rapidly into the single-family market since the pandemic began … Investors with large portfolios (at least 100 properties) drove much of this growth, nearly doubling their share of investor purchases from 14 percent in September 2020 to 26 percent in September 2021.
By buying up single-family homes, investors have reduced the already limited supply available to potential owner-occupants, particularly first-time and moderate-income buyers. Indeed, investors are more likely to target lower-priced properties.
In September 2021, investors bought 29 percent of the homes sold that were in the bottom third by metro area sales price, compared with 23 percent of homes sold in the top third. Investor-owned homes are typically converted from owner-occupied units to rentals or upgraded for resale at a higher price point.”
Blackstone Back in the Home-Buying Business. Read More>>>>>>