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

Investor market shares hit a record high in Q3 2021. A record dollar amount of $64 billion worth of homes was purchased by investors. This is not only the highest dollar amount since the first quarter of 2000, but it also translates to the highest share of investor purchases, according to Redfin. Investors purchased roughly 90,000 total homes during Q3 2021.

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.