More than half of residential real estate investors view their area’s housing market as overvalued, according to a new report from Auction.com.
The company’s 2022 Buyer Insights Report revealed that 55% of buyers who purchased a distressed property through the Auction.com website described their local market as “overvalued with a correction possible,” up from 40% last year. The statistic is based on a March 2022 survey of people who bought at least one property via Auction.com during the past three years.
The report also found that 17% of buyers expect home prices to stay unchanged or decrease in their local market in 2022, up from 12% last year.
“While most real estate investors on the frontlines of the housing market believe their local market is ripe for a correction, more than eight in 10 don’t think that correction will happen in 2022,” said Daren Blomquist, vice president of market economics at Auction.com
According to Blomquist, these investors know better than most.
“Most of our buyers are local community developers buying and renovating distressed homes that they will resell to retail buyers six to 12 months in the future,” Blomquist said. “This strategy keeps them constantly vigilant about the future market conditions into which they will be reselling their renovated homes.”
Eighty-four percent of survey participants described themselves as individual investors, while 91% of respondents said that they purchased 10 or fewer properties in 2021. The share of survey participants who described themselves as owner-occupant buyers (8%) was higher than the share who described themselves as institutional investors (5%).
“Small investors are particularly active at these auctions and they are sort of the single-largest buying group,” said Laurie Goodman, vice president for housing finance policy at the Urban Institute. “The thing that I thought was really, really interesting was that a lot of these mom-and-pop investors buy these properties with the intent to fix them up and flip to owner-occupants down the line.”
More than six in 10 buyers (61%) indicated that reselling renovated homes to owner occupants was their primary investment strategy, up from 57% a year ago. Seventy-two percent of buyers said their investment activities improve neighborhoods.
“Auction buyers are helping with better disposition outcomes by taking inventory and turning it into affordably priced housing,” said Jason Allnutt, CEO of Auction.com.
The survey also suggested that residential investment activities are unlikely to slow for the remainder of this year, with 86% of respondents expecting their acquisitions to stay the same or increase in 2022.