Investor activity in the U.S. real estate market remained on the upswing in the third quarter of last year, with investor purchases comprising 16.4% of all single-family home sales during the three-month period, according to RealtyTrac.
That’s up from a share of 11.7% in third-quarter 2020, equating to a year-over-year increase of about 40%. The increase was geographically broad-based, with all but five states — Alaska, Delaware, Iowa, Nebraska and Vermont — registering gains in their shares of investor-purchased homes.
Investors made up the largest percentage of the market in Arizona, where 26.6% of all home purchases were of the business-purpose variety. Georgia (25.2%), Arkansas (23.5%), Florida (23.1%) and Mississippi (22.7%) also had high investor-purchase shares.
“The share of investor purchases continues to rise in the vast majority of states,” said Rick Sharga, RealtyTrac’s executive vice president. “Despite historically low inventory of homes for sale, and historically high prices, both fix-and-flip and rental-property investors continue to be very active in the residential market.”
RealtyTrac also found that investors nationwide paid an average of 18.9% less than the overall median sales price during Q3 2021. Investors paid a median price of $245,000 per home, compared to $302,000 for all single-family purchases. But while investors continued to pay less than consumers, the difference between the two groups is showing a marked decline. The discount reaped by investors during Q3 2021 was substantially lower than the 29.4% reduction they enjoyed in the same quarter of 2020.
Investors continue to wield the benefit of more liquidity than the typical consumer, continuing in most cases to pay with cash rather than via mortgage financing. The share of all-cash home purchases among investors increased by 9.5 percentage points from Q3 2020 to Q3 2021, rising from 69.5% to 79%. In every state besides Alaska and Wyoming (plus the District of Columbia), more than 50% of all investor home purchases were made entirely with cash.
While the trajectory of real estate investor activity has been locked firmly upward of late, it will be interesting to watch which way the needle starts to move going forward. A recent RealtyTrac survey found that an increasing number of investors are pessimistic about how market conditions will unfold over the next six months. They cited rising inflation and rising mortgage interest rates as near-term headwinds.
And while all-cash purchases give investors a significant edge in highly competitive market of today, soaring prices also are eating into returns on investment (ROI). Attom Data Solutions reported in December that fix-and-flip profit margins in Q3 2021 fell to their lowest point since early 2011.
“As mortgage rates rise, investors benefit even more by being able to execute all-cash purchases,” Sharga said. “Rising home prices and inflation make it difficult for investors to achieve their ROI objectives, but they make it even harder for the average consumer to afford to buy a property. So, even though investor profit margins may be declining, it’s possible that we’ll continue to see the investor share of purchases increase over the next few quarters.”