How did investor demand to buy property change in 2021?
- Investors paid higher prices at lower capitalization rates (81%, 25 Votes)
- Investor paid lower prices at higher capitalization rates (19%, 6 Votes)
- Investor pricing and capitalization rates remained unchanged (0%, 0 Votes)
Total Voters: 31
The cost of homes has continued to rise due to the housing shortage. Thus, more and more Americans are looking to rent.
Buy-to-let investors – the more stable, long-term brand of investors – are taking advantage of this, and are able to now charge higher rents in buy-to-let properties, including multi-family and single family residence (SFR) rentals. In September, across the country, the average monthly rent rose 10.7% year-over-year, according to Redfin, making rental investment a lucrative proposition.
The shift to SFR rentals
High-cost California cities like San Francisco continue to experience high demand for multi-family properties, due to limited space and the high cost of land. Despite this high demand, future prospects for multi-family housing growth face multiple obstacles, here and across California, including:
- restrictive zoning limitations; and
- not-in-my-backyard (NIMBY) advocates.
Relatedly, investors focused on SFRs in Q3 2021, when SFRs made up over 74% of investor purchases.
In Q3 2021, the total U.S. record share of homes bought by investors reached 18.2%, up from:
- 16.1% in the prior quarter; and.
- 11.2% a year earlier.
In California during Q3 2021, investors purchased:
- 20.4% of homes in San Francisco;
- 19.8% of homes in San Diego;
- 19.4% of homes in Sacramento;
- 19.1% of homes in Los Angeles;
- 18.7% of homes in Anaheim;
- 15.3% of homes in Riverside;
- 13.8% of homes in San Jose; and
- 13.0% of homes in Oakland.
In the Golden State, the highest investor activity has long been concentrated in these major metros. However, while these metros are still relatively popular, investors with a broader reach are now increasingly looking outside of California for lower-cost housing to purchase.
For investors seeking to make a quick profit, 2021 is not a prudent time to invest, here in California or elsewhere – prices are high and remain unstable. Looking ahead to 2022, these investors are better off remaining cautious when looking to make purchases. Prices will soon reach a point where they will cool down, especially post-expiration of the foreclosure and eviction moratoriums.
As forced sales begin hitting the markets, home prices will fall. But buy-to-let investors who purchase to hold property long term are a different matter, since their return arrives through monthly rents and long-term property appreciation. Still, all types of investors will find less competition and more opportunities to purchase if they simply wait until sales reach a bottom around 2023-2024.