Small investors continue to scoop up homes
Seeking steady rent growth and affordable price points, investors were drawn to cities in the Midwest and Southeast.
- Investors purchased a large number of homes throughout the pandemic, accounting for between 8% and 9% of all home sales during much of 2022.
- The share of investor purchases was significantly higher in cities like Memphis, St. Louis and Jacksonville.
- Smaller investors remain very active in the market while larger investors started heading toward the sidelines over the winter.
The pandemic housing boom led to a buying spree from regular people and investors alike, sending home prices across the country skyrocketing. Regular buyers with financing often found themselves pitted against deep-pocketed cash buyers for the most coveted homes in the hottest markets.
But where were investors most active? And how much of an impact did they have on the overall market?
A new report from Realtor.com offers an extensive look at investor activity before and during the pandemic and found that not all investors are the same — and not all markets experienced similar levels of investor activity. Overall, investor purchases peaked in February 2022 when investors accounted for nearly 9% of all home sales.
The report looks specifically at investors who purchased homes to rent out and categorizes them as small investors with under 10 properties, medium-sized investors with between 10 and 50 units, and large investors with over 50 properties. Home flippers and iBuyers were excluded from the findings, the report notes.
The hottest markets for investors are in the Midwest and Southeast
While places like Boise, Austin and Phoenix were prime markets for relocating buyers during much of the pandemic, investors were drawn to more affordable markets in the Midwest and to rapidly appreciating metros in Florida.
The market that saw the most investor activity last year was Memphis, where nearly a quarter of all homes sold in 2022 were purchased by investors. In St. Louis, 21% of last year's home sales were to investors, while investors took 19% of the home sales in Indianapolis and 17% in both Birmingham and Kansas City.
In Florida, the Tampa area, Lakeland and Jacksonville were also hot markets last year, witnessing significant levels of investor purchases. In Jacksonville, the surge of investor home purchases has been cited by the city council as a key contributor to the city's affordability crisis.
But it's the reasonable purchase price combined with steady rent growth that has drawn investors of all sizes to these particular markets, Realtor.com Economic Research Analyst Hannah Jones told Real Estate News.
"A lot of the markets where investors are really active right now are these more affordable markets where home prices didn't accelerate during the pandemic like they did in other areas," Jones said. "Some of the much more expensive markets that might have been more popular early in the pandemic have gotten so expensive that you might no longer see a return on the investment."
Large investor activity declined significantly in 2022
In terms of all investor buying activity, larger investors account for a smaller share of property purchases compared to the vast pool of smaller investors who, as a group, scoop up large numbers of homes. But large investors became more active during the pandemic, and their share of total investor purchases peaked at nearly 32% in June 2022. By December 2022, however, that share had fallen below 14%.
Surprisingly, the Realtor.com data shows that small-time investors were actually more active and had a bigger share of all investor purchases before the pandemic started than during the first year or two. But even at their low point, small investors still accounted for roughly 55% of all investor purchases in 2021 and 2022. More recently, that percentage has shot upwards to just under 73% in December 2022.
The rise of the cash buyer became a common trope during the pandemic. Investors are more likely than a typical buyer to purchase a home without financing, and in 2021, over 72% of investors bought a property using cash. In November of that year, nearly 74% of investors bought in cash — the highest level in seven years, the report said.
But as the market cooled in 2022, the share of investors using cash to purchase a property fell, and by December was less than 67%, the lowest share in nearly 25 years. That change is likely to due to larger — and more well-capitalized — investors exiting the market, according to the report.
Even in markets with a high percentage of investors, those investors aren't generally competing with each other, but with regular homebuyers. And they're buying more homes than they're selling, though the gap is narrowing. In June 2022, investors purchased 13,000 more homes than they sold, which was the high point during the pandemic, the report said. By December 2022, that number fell to 2,800 more homes bought than sold by investors.