HOUSTON – (By Dale King, Realty News Report) – Investors, speculators and small “mom & pop” buyers are purchasing homes at record rates—either to rent, flip, or demolish and rebuild—according to a national home-purchase activity report released by CoreLogic, Inc.
The report finds that the share of U.S. homes bought by those who do not intend to live in them reached 11.3% at the end of 2018, the highest level CoreLogic has recorded since it began tracking this data in 1999.
The investment purchase rate in 2017 was the second-highest on record at 11%, slightly above the buying rates from 2012–2014 when investor acquisition ranged from 10.3% to 10.9%.
Analysts expected investor activity to decline after the post-recession buying surge ended. Instead, after a short dip, investor purchases rose again, driven by strong rental demand, the growing ease of buying homes online, and low mortgage rates.
The report highlighted several notable findings, said Dr. Ralph B. McLaughlin, deputy chief economist at CoreLogic and the report’s author.
First, McLaughlin noted, “the increase isn’t coming from large institutional buyers but rather from many smaller, ‘mom and pop’ investors entering the market. These buyers often focus on starter homes, competing directly with first-time buyers, while also targeting properties in markets with relatively high rents.”
He added that investor home-buying rates vary widely across the country, with the highest rates concentrated east of the Mississippi River and lower rates in the West. Every one of the top 10 metropolitan areas with the highest investor purchase rates is in the eastern half of the United States, with only two exceptions in the central region: Des Moines, Iowa (18.7%) and Oklahoma City (17.2%).
Investor activity is generally lowest in the West, McLaughlin said, and that’s where Texas stands out in a different way.
“Texas has below-average institutional investor activity, with El Paso at the very low end at 5.9%.” In Austin, 6% of homes are bought by nonowner occupants; Dallas registers 8.1% and Houston 9%. While these figures are lower than those seen in many eastern metros, they represent record-high investor-purchase shares for those Texas markets.
The five metropolitan areas with the smallest investor shares are all west of the Rockies: Ventura, California (4.8%); Boise, Idaho (4.8%); and Oakland, San Jose and Sacramento, California at 5.1%, 5.2% and 5.3%, respectively.
Three additional markets outside the West with relatively low investor activity are Elgin, Illinois (5.4%), Frederick, Maryland (5.6%) and Worcester, Massachusetts (5.9%).
CoreLogic’s analysis points out that older American cities often attract investors because of lower prices and redevelopment potential. But investors’ key advantage is liquidity: having cash or access to funds allows them to outbid first-time buyers or younger purchasers, and they frequently offer amounts above the asking price to secure properties.
The report emphasizes the rise of small-scale investors. “The share of small investors grew from 48% of all investor-purchased homes in 2013 to more than 60% in 2018. Large investors—those buying more than 101 homes—expanded activity between 2000 and 2013 but have since pulled back after the foreclosure crisis and now account for 15.8% of investor purchases.”
Medium-sized investors—those purchasing between 11 and 100 homes—have also lost market share, declining from a peak of 30% in 2010 to 22.7% in 2018.
Despite the attention on investor purchases, McLaughlin cautions against quickly labeling absentee owners as harmful to prospective owner-occupants. “The evidence is inconclusive because there’s a possible chicken-or-egg relationship,” he said.
“It’s possible that increased investor activity raises competition and reduces supply relative to aggregate demand. But the reverse could also be true: markets with tightening supply may attract investors who view limited-inventory markets as safer investments.”
Still, there is a perception that absentee owners are unwelcome in neighborhoods dominated by owner-occupants. In South Florida, for example, some homeowner and property-owner associations impose minimum owner-occupancy requirements—often one or two years or more—before owners may rent units.
Those restrictions have an effect. “Without occupancy restrictions, more homes would be offered as rentals,” McLaughlin said.
CoreLogic’s economist concluded that investor purchases are likely to rise if mortgage rates remain low. “Given current conditions, homebuyers today are more likely to encounter investors at open houses than at any time in the past two decades,” he said.
June 24, 2019 Realty News Report Copyright 2019
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