Real Estate Investors Bought 18% Of Homes Sold In Q3: Report

Real estate investors picked up 18.2% of the U.S. homes sold during the third quarter, a record-setting level.

What Happened: According to a data report from the Seattle-headquartered brokerage Redfin Corp RDFN, the third quarter sales level is up from a revised rate of 16.1% in the second quarter and 11.2% in the third quarter of 2020.

Investors bought a record 90,215 homes in the third quarter, up 10.1% from the prior quarter and up 80.2% one year earlier, which was the second-largest year-over-year gain on record. The dollar total for these purchases was $63.6 billion, up from a revised $58.8 billion in the second quarter and $35.7 billion a year earlier.

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How It Happened: The typical home acquired by investors cost $438,770, which was 5.3% higher than a year earlier. Furthermore, 76.8% of investor home purchases were paid for with all-cash transactions.

Low-priced homes represented 36.1% of investor purchases in the third quarter, a record low, while mid-priced homes represented a record high of 33% of investor purchases. Atlanta’s housing market saw the greatest activity in this area, with nearly one-third of homes sold in the third quarter being purchased by investors. Phoenix (31.7%) and Charlotte (31.5%) also saw higher-than-normal investor purchasing of residential properties.

Climate change also played a role in these sales, with nearly two-thirds of the homes investors bought in the third quarter being categorized with high heat risk and nearly the same share carrying storm risk. But homes with high fire risk represented a relatively small portion of overall purchases because those area are mostly rural and have very few homes for sale.

What It Means: "Increasing home prices fueled by an intense housing shortage have created opportunities for investors to reap big profits," said Redfin Senior Economist Sheharyar Bokhari. "Those same factors have pushed more Americans to rent, which also creates opportunities for investors because investors typically turn the homes they purchase into rentals and can now charge higher rents."

Indeed, Redfin also reported that average monthly rents rose 10.7% year-over-year in September, the fastest growth in at least two years, while the median home sale price increased 13.9%.

"With cash-rich investors taking the housing market by storm, many individual homebuyers have found it tough to compete," Bokhari added. "The good news for those buyers is that the housing market has started to cool. Bidding wars are on the decline, and if home-price growth continues to ease, we may see investors slow their roll."

Photo: Mohamed Hassan from Pixabay