Consumers confronted with high housing prices sometimes point to private equity when buying homes as a contributing factor. But experts say that while the housing market has multiple issues, it’s hard to determine if real estate investor activity is truly deterring people from becoming homeowners across the U.S.
Real estate investors purchased about 44,000 U.S. homes in the first quarter in 2024, up 0.5% from a year ago, according to Redfin, a real estate brokerage site. It’s the first increase since the second quarter of 2022.
The data tracks investor activity, which includes people or entities buying properties to sell or to rent, without intending to live there themselves.
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What an investor home purchase means
In this context, investors are defined as any institution or business that purchases residential real estate, according to Redfin. Investor purchases typically reflect buyers who are purchasing a home using a limited liability company, or LLC, another form of company or a trust, and are typically buying the home to generate income or a profit. Some intend to use the house as a part-time residence or vacation home.
“It means that it is someone who was buying a home and they’re not looking to make this home their primary residence,” said Chen Zhao, senior economist at Redfin.
Investor share refers to the portion of homes purchased by investors over a certain period of time, said Zhao.
In the first quarter of 2024, the share of homes purchased by investors was 19%, according to Redfin.
“That implies that around 81% of homes, by our measurement, are being purchased by people who are not investors, so they’re probably buying their homes to make them their primary residence,” said Zhao.
Institutional operators, or real estate investors that own at least 1,000 single-family homes, own about 1% of the total housing stock in the U.S., according to an analysis from research site ResiClub, based on data from Parcl Labs, a real estate data firm.
Gauging investor effect ‘is complicated’
In a new report, Moody’s Analytics looked on a metro-by-metro level at the relationship between investors’ share of sales and homeownership rates, or the number of households that own their homes.
“It looks like there’s a pretty weak relationship between the two,” said Matthew Walsh, assistant director and economist at Moody’s Analytics
In other words, he said, there’s not much evidence for crowding out homebuyers from the market.
Based on the analysis, “these investors aren’t really taking up a significant portion of the housing stock and keeping traditional family buyers from owning their homes,” he said.
Investors bought existing homes at high rates in some areas, Moody’s found, in some cases representing up to roughly one third of purchases. But even that doesn’t necessarily point to consumer homebuyers being crowded out, Moody’s analysts told CNBC.
It’s almost impossible to measure how much of a “crowding out” effect there is on the market, said Redfin’s Zhao.
“Answering that question is really, really complicated. And it’s not something that you can do just by looking at fairly straightforward data,” Zhao said.
Part of the recent increase in real estate investor activity is due to seasonality, as more homes are typically sold during the spring, Walsh said.
Additionally, mortgage interest rates were at a lower level at the start of 2024 before picking up in the month of April, he said.
Back in 2022, the housing market was at a peak, when home sales were high until halfway through the year, said Walsh. Sales began to decline as mortgage rates climbed, as higher interest rates affect both typical homebuyers and investors, he said.
What investor interest means for buyers and renters
If you’re a consumer buying on the market, you are competing against investors on top of other typical homebuyers, Zhao explained.
“You have to think about what investors are doing with those homes, and that’s where it gets a little bit more nuanced,” she said.
Many investors rent out single-family homes. While that may not be good for potential buyers, “it’s a positive sign” for renters because it’s boosting the area’s rental supply, Zhao said,
“People looking for those bigger rentals, having additional supply there is really important,” she said.
On the other hand, some investors buy properties that are considered uninhabitable, fix them up and then add them back into the housing supply — which is ultimately good for the housing market, she said.
“It’s very much a nuanced argument when you’re thinking about, what does investor activity mean for the housing market,” said Zhao.