Investor Purchases of Single-Family Residential Increasing on West Coast

Redfin, San Francisco, Seattle, Los Angeles
Courtesy of Paul Hanaoka

By Scott Anderson

Over the course of the past year, the United States housing market has begun to see an increase in investor-led purchases of single-family homes, including the west coast.

According to a recently released study by Redfin, real estate investors have purchased a record 90,215 U.S. homes during the third quarter of 2021. That would equate to 18.2 percent of available homes in the U.S. market, up from a rate of 16.2 percent in the second quarter and 11.2 percent a year earlier.

“My sense is that investors are coming back into the market because there is a lot of price growth, double digit price growth,” said Sheharyar Bokhari, senior economist at Redfin. “As we go into the next year, and price growth remains high, we may continue to see lots of investor activity coming in because they are seeking rental income or flipping properties.”

According to Redfin, average monthly rents rose 10.7 percent year over year in September, the fastest in two years, while the median home sale price increased 13.9 percent. With rising rents across the country, investors are seeing a prime opportunity for positive returns on investment.

Of these investor-led purchases, single-family homes accounted for nearly 3 in 4 (74.4 percent) of acquired property during the third quarter, the highest on record according to Redfin. That is up from 70.6 percent a year earlier. 

This record setting increase, however, did not apply to condos and townhomes. Condos and co-ops made up 16.9 percent of investor purchases, a record low and a decrease from 19.8 percent in the third quarter of 2020. Townhouses and multifamily housing represented 5.4 percent and 3.4 percent of investor purchases, which is not much of a change from one year earlier. 

Redfin’s analysis was conducted by examining county sale records for homes purchased from January 2000 through September 2021. An investor was classified as any buyer with a name including at least one of the following keywords: LLC, Inc, Trust, Corp, and Homes. Also, investors were identified as any buyer whose ownership code on a purchasing deed included at least one of the following keywords: association, corporate trustee, company, joint-venture, and corporate trust.

According to Redfin’s report, west coast cities seeing a significant share of investor purchases during the third quarter of 2021 include San Francisco, Calif. at 20.4 percent, San Diego, Calif. at 19.8 percent, Sacramento, Calif. at 19.4 percent, Los Angeles, Calif. at 19.1 percent, Anaheim, Calif. at 18.7 percent, Riverside, Calif. at 15.3 percent, San Jose, Calif. at 13.8 percent, Oakland, Calif. at 13 percent, and Seattle, Wash., at 9 percent.

“The investors are located in places where there is lots of job growth, and lots of demand for housing,” said Bokhari. “The investors are in there for the rental income, they know there will be a lot of demand for their properties.”

Even with large increases in investor purchasing in the west coast, the two largest US cities with investor-led purchases were Atlanta, Geor., at 32 percent and Phoenix, Ariz., at 31.7 percent. Demand for single-family homes jumped at the onset of the coronavirus pandemic, as many Americans decided to migrate to areas away from heavily populated and congested cities and to areas with more space. 

“Over the past several years, these Sun Belt cities have built more housing, and don’t have as much restrictive zoning as the coastal cities,” said Bokhari. “We have seen much migration. They are looking at putting in homes for rent in the big migration spots.”

As the market moves forward, the possibility of an ever-increasing presence of investors may have a grim outlook for the single-family home buyer.

“From a home buyers’ perspective…they have to compete with investors with a lot of cash. And that makes it really difficult for them to win with their [home buying] offers…They may have to rent,” said Bokhari. “From that perspective, home buying in general and [with there] not being a lot of inventory in the county, this is [becoming] a sensitive issue. The issue here is that it puts a lot of pressure on home prices rising with short supply and lots of demand.”