Investors are draining an increasingly large share of American homes from the market, leaving traditional homebuyers with fewer options, at higher prices.
Why it matters: Homeownership is the single most important way Americans build wealth. Families are now increasingly facing off with cash-rich institutional investors bidding for houses, as they try to climb onto the property ladder.
Driving the news: The share of American homes sold to investors hit a record high of 18.4% in the fourth quarter of 2021, according to a recent report from real estate firm Redfin.
- These investors bought roughly 80,000 homes worth $50 billion during the last three months of the year.
Worth noting: Investors are an especially heavy presence in markets that have seen some of the highest price spikes in the country.
- In Las Vegas and Phoenix, where prices are were up 28% and 25% last year, investors bought roughly 30% of the houses sold in the fourth quarter, Redfin found.
What they're saying: "Ordinary folks are feeling the pinch," says Redfin economist Sheharyar Bokhari, who decided to research the role of investors after hearing anecdotes about individual house hunters increasingly losing out to them.
Context: The highly symbolic — politically sensitive — American housing market has transformed in the years since the financial crisis of 2008.
- Large institutional investors have been pumping cash into a market that used to be highly localized and dominated by owner-occupiers and small-time landlords.
- At the same time, a decade's dearth of homebuilding in the aftermath of the housing bust has created a structural shortage of houses.
State of play: Over the last two years, the pandemic triggered a home-buying boom amid record-low mortgage rates and house-bound families' desires for home offices and more space. Affordability has fallen sharply, as prices have surged.
What we're watching: Homebuilding. While the surge of investors into the market is adding to the strains on housing affordability, the fundamental problem is a shortage of supply, especially in the denser markets where the best jobs are.
- Yes, but: These markets — often in the affluent, liberal-leaning suburbs surrounding big cities — are also the toughest ones in which to build, amid restrictive zoning and endemic NIMBYism.
