When it comes to buying homes in today’s tight housing market, survival of the flushest tends to separate winners from losers.
Downpayments approximately 118% higher in the third quarter than they were in 2019 reflects one driver — and symptom — of a housing access shift landing the keys of more homes in the hands of real estate investors than owner-occupied homebuyers.
“With affordability still stretched and inventory tight, many would-be buyers remain sidelined, giving investors a larger share of the market and, in some areas, more influence over prices,” commented Danielle Hale, chief economist at Realtor.com, in a new report highlighting the premium investors pay to land the deals they want.
As typical buyers pulled back from the market amid persistent affordability pressures, investors’ share of overall home purchases edged higher, “helping drive prices upward in markets where competition for homes remains intense,” the report says.
Among major U.S. metros, investors paid the largest premiums — defined as the difference between median sales prices for investor-purchased homes and overall local sales — in Los Angeles, San Diego, New York, San Francisco and Nashville, Tenn., “where rental demand remains strong and affordability constraints continue to sideline typical buyers.”
Investors paid 19.8%, 9.2%, 8.7%, 6.8% and 3.4% above median local sales prices in those metros, respectively, in the third quarter.
“As a result, investor activity can amplify price pressures,” Hale explained, “especially in markets where their purchases concentrate in already competitive price ranges.”
By state, investors paid the highest premium in Montana (35.1%), Utah (33.7%), California (23.3%), New York (12.3%) and Vermont (3.2%).
However, investors also bargain shopped, purchasing homes up to 50% below median local sales prices in more affordable markets.
The largest gaps between median investor purchase prices and overall purchase prices in the second quarter emerged in Michigan (53.1%), Maryland (45.4%), Virginia (45%), Delaware (41.4%) and Wisconsin (40.7%).
The report indicates these markets and price levels provide investors with the best “rent-to-price ratios and long-term income potential.”
At the metro level, these discounts were concentrated in the mid-Atlantic and Midwestern cities of Detroit, Pittsburgh, Baltimore, Cleveland and Milwaukee, where investors paid 58%, 52.7%, 52%, 51.4% and 50.1% lower than the median local sales price, respectively.
