By Julia Horowitz, CNN Business
Home prices in the United States increased at the fastest rate on record in 2021. That’s drawn in a flood of investors looking to cash in on the boom.
Investors bought 18.4% of homes sold across the country during the last three months of the year, according to Redfin. That’s an all-time high on records dating back to 2000.
The brokerage tracked purchases from private equity firms, foreign investors, trusts, mom-and pop-investors and “i”-buyers — or companies that use algorithms to spot deals and quickly flip homes.
Behind the rush: Demand for homes has jumped since the pandemic hit, as Americans amassed savings and sought out properties better suited to working from home. Meanwhile, rock-bottom borrowing costs made mortgages more affordable.
At the same time, there have been serious constraints on supply. Inventory of homes dropped to record low levels in December, according to a recent report from the National Association of Realtors.
That’s caused prices to skyrocket. Home prices rose 18.8% in 2021, according to the S&P CoreLogic Case-Shiller US National Home Price Index, which posted Tuesday.
Catnip for investors
This dynamic is catnip for investors, who have been hunting for more creative ways to generate returns. They shelled out $49.9 billion for homes in the fourth quarter, up from $35 billion one year earlier.
The shortage of housing is what’s driving the affordability crisis, Redfin economist Sheharyar Bokhari told me. But because two-thirds of investors pay with cash, they have a “competitive advantage” over other buyers.
“Investors are not the cause of the affordability issue, but since they are flush with cash, they are more likely to win a home over a regular homebuyer, creating a frustrating experience for those that keep losing offers,” Bokhari said.
Single-family homes accounted for about three in four investor purchases last quarter. Lower-priced homes, which can create more opportunities for investors to turn a profit, were the most popular.
You’re most likely to be competing against investors if you live in the Sun Belt.
Redfin found that in Atlanta and Charlotte, almost a third of homes sold in the fourth quarter were bought by investors. In Jacksonville, investors made up close to 30% of home sales. (Redfin’s study did not include Raleigh, and WRAL TechWire has requested an analysis from the national brokerage firm for the Raleigh area.)
Why? All were below the national median for home sales of $383,000 in December, making them attractive to investors searching for deals.