Is Investor Homebuying Activity Cooling Off?
While the pandemic has certainly had some investors pulling back over the last 18 months, a new report shows the decline’s been happening for some time.
In fact, according to CoreLogic, investment home purchases peaked back in 2018, and ever since, the share of investor purchases has slowly dropped, first to 16.3% in 2019 and then to 15.5% in 2020.
The decline has been most notable with larger investors. According to the data, small, mom-and-pop ones — those with three to 10 homes — have actually increased their market share over the years, going from 53% of the investment market in 2018 to 56% in 2020.
“Smaller investors are making up a more significant share of investors than at any point in the past and continue to gain their market share at the expense of their larger counterparts,” the report reads. “This is likely due to large out-migration from expensive areas to more affordable ones, allowing smaller investors to snap up properties at lower rates.”
Investor activity has also varied widely by region and price tier. So what are investors doing in your market? Let’s take a look.
Where investors are most active
The highest rates of investor activity are in the South and Midwest, where the majority of the top 10 investing cities are located. Corpus Christi, Texas, takes the cake for most investor activity. There, a whopping one in four purchases came from an investor last year.
The remaining top five investor markets include Boise, Idaho; Kansas City, Missouri; Atlanta; and Memphis, Tennessee.
Investor purchases were also more prevalent on lower-priced properties. In 2020, nearly 19% of all home sales priced in the bottom third came from investors. This trend toward more affordable properties is likely what drove much of the uptick in the above markets.
As the report explains, “In 2020, cities with the most investor activity — like Boise, Phoenix, and Kansas City, Missouri — were high-growth markets with relatively low prices that have moved investors’ attention away from California.”
Where investors pulled back the most — and why
The Northeast region has seen the most pullback from investors. Eight of the 10 bottom markets for investment purchases are located in the region, with Worcester, Massachusetts, claiming the crown. There, a mere 9% of purchases came from investors in 2020.
Other cities in the bottom five are Bridgeport and Hartford, Connecticut; Pittsburgh; and Rochester, New York.
According to the report, this waning interest is likely two-pronged. First, population growth has leveled out in many of these markets (particularly Pittsburgh, where the population actually fell over the last decade). Stricter land use regulations and tenant protections also play a role, CoreLogic reports.
“In 2020, a new factor influencing investment behavior arose: eviction moratoriums. In places with moratoriums and strong tenant rights, renters who couldn’t pay made it challenging to have a reliably lucrative investment,” the report reads. “These restrictions likely deterred investor activity since they brought an additional layer of risk to the market.”
The bottom line
Investors are clearly shifting their focus, but will it continue? That remains to be seen. The trajectory of the pandemic will certainly play a key role in where investors go next, but pricing trends, homebuyer demand, and inventory will factor in, too.
If inventory continues to rise (as it has in recent weeks), it should tamp down price growth and open the door to more investments. Only time will tell, though.