Buyers purchase a document stake of properties offered on Metro Denver within the third quarter – The Denver Submit
Investors are buying homes at an unprecedented rate across the country, including metropolitan Denver, creating more competition for individual buyers trying to find their own home in an underserved market.
According to a study by Seattle-based real estate broker Redfin, investors bought a record 18.2% of homes sold nationwide, or $ 63.6 billion worth of 90,215 homes, in the third quarter. That’s a sharp increase from 50,051 homes, which accounted for 11.2% of all sales that investors claimed in Q3 2020 and above pre-pandemic levels, including during the housing crisis when investors were actively pending foreclosures.
More than three out of ten homes purchased in Atlanta and Charlotte, NC, went to investors in the third quarter. Metro Denver was closer to the national average, with investors accounting for 17% of home sales, up from their market share of 9% in the year-ago quarter. That’s 2,831 of the 16,811 homes sold in the last quarter, up from 1,646 of the 17,577 homes sold in the third quarter of 2020, according to the study.
“Investors expect rents to rise in the coming years,” said Redfin chief economist Daryl Fairweather. “Although home prices are high, they are waiting for rents to go up and there is no sign of prices going down.”
Not only are investors buying more single-family homes than they have in the past, but their purchases are also more likely to be shifting toward mid-range and upscale homes than single-family homes, which have declined from the majority of investor purchases to a little more than a third, Redfin research shows. In Denver, the average price that investors paid for a home was $ 508,700, according to Redfin.
Redfin defines an investor as a business unit that is used to purchase a residential property. This definition excludes individual buyers buying investment property on their own behalf, but it also puts some buyers in the investor category who buy a home to live in through an LLC or trust. Overall, the spectrum of investors is diverse, from retirees buying a house on the same block to billions of dollars in private equity funds.
Troy Miller, executive director of the Investment Community of the Rockies, or ICOR, estimates there are between five and seven institutional buyers active in the Denver market. Most of the remainder are seasoned investors, not the kind of newbies who entered and paid dearly in an oversaturated real estate market in the mid-’00s.
“Activity is very high because institutional buyers are on the hunt for returns and almost never take out loans. An ICOR member is working directly on sourcing deals for an institutional buyer with the expectation to acquire 40 properties per quarter, ”he said in an email.
Plenty of available capital and waning competition have led investors to buy even more expensive homes in the $ 500,000 to $ 700,000 range, he said. Margins are lower, but with proper remediation, returns can range from $ 100,000 to $ 200,000.
“Seasoned investors just adapt to new market variables,” he said.
Andrew Abrams, chair of the Market Trends Committee at the Denver Metro Association of Realtors and a real estate agent in the Denver area, said he worked with clients looking to buy a second or third home in order to grow their income as an active investor 300 Townhouses in his portfolio.
“From my recent conversations with them, it appears that the value of the dollar is falling every day and interest rates are historically low. Investing in an actual asset with limited supply will help them hold their own against a weaker dollar, ”he said. In short, real estate offers a way to hedge against inflation and is an asset class over which you have more control than stocks or bonds.
Investors can borrow around 2.5%, he said, and even if house price gains return to the 30-year average of about 6% a year, they will stay ahead. Should home prices fall, for example because inflation is driving mortgage rates high, investors will be better equipped to weather it. An investor who loses 30 to 40% on a purchase has a much bigger cushion than a first-time buyer who makes 3 or 5% less, he said.
There is also a general feeling that higher home prices will discourage more households from buying an apartment, leading to greater demand for single family homes in the years to come. Higher home prices are a risk, but also a safeguard for more rental demand.
The current surge in investor interest comes after home prices have risen at unprecedented double-digit annual rates for several months. CoreLogic estimates that greater Denver home prices rose 19% year over year in September. In the next year, she estimates the growth at an average of only 0.4%.
“It feels like we’re at a turning point,” said Eli Beracha, a real estate professor at Florida International University, which works with Florida Atlantic University to maintain an index of expected house price changes, in a press release.
When exactly a given housing market will peak is difficult to tell, Beracha said, but he recommends that individual buyers in the country’s most overpriced markets, including metropolitan Denver, consider renting and reinvesting their savings. In other words, his advice is to give free rein to investors.
“You don’t want to be the last to buy when your local market is at its peak because it can be a long time before you can resell your property for a significant return,” he said.
Abrams said first time buyers should look for property types that investors are currently less active on, such as condos and townhouses, and they should try to target sellers who may have been in a similar situation decades ago.
“Telling your story helps buyers compete,” he said. “Most people have so much love and memories put into their home that they want to pass them on to someone else who fills these walls the same way.”
Owning a home is the single most important way Americans build wealth. Property can make for a more stable retirement, and a home is a resource that can be passed down to children and other heirs. Because of this, the growing dominance of investors is having a bigger impact on the country, Fairweather said.
“Basically, we need strong wage growth for the middle class in order to take back home ownership from investors,” she said.