Redfin reported last week that real estate investors are buying up record shares of U.S. homes. Specifically, investors purchased 18.4% of all for-sale homes in Q4 2021. This is a record high, and is an estimated 80,000 homes at a value of $50 billion. In terms of market share, investors were most active in Atlanta, Charlotte, and Jacksonville.

Source: Redfin (Feb. 2022)

Redfin economist Sheharyar Bokhari notes:

“While record-high home prices are problematic for individual homebuyers, they’re one reason why investor demand is stronger than ever…Investors are chasing rising prices because rental payments are also skyrocketing, incentivizing investors who plan to rent out the homes they buy. The supply shortage is also an advantage for landlords, as many people who can’t find a home to buy are forced to rent instead. Plus, investors who ‘flip’ homes see potential to turn a big profit as home prices soar.”

And, mid-priced homes appear to be gaining popularity with investors in Q4 2021:

Source: Redfin (Feb. 2022)

In commenting on the above data, Paul Bergeron of Globe Street notes that “Although investor market share hit a record in the fourth quarter, the number of homes bought by investors declined 9.1% from the third-quarter peak—but it’s up significantly from pre-pandemic levels. Investors bought 80,293 homes in the fourth quarter, up 43.9% from a year earlier.”

Ariana Fine of Mortgage Orb jumps in, noting that single-family homes made up 74.8% of total investor purchases, the highest level on record, and up from 72.2% in Q4 2020. Condo purchases are decreasing, hitting 15.4% in Q4 2021, down from 17.8% a year earlier. Interestingly, townhouses and multifamily properties represented 6% and 3.8%, respectively, of investor purchases.

According to Will Parker of The Wall Street Journal (subscription required), investors are choosing their markets carefully. “Landlords say they are following the migration patterns of workers and their employers, who relocated to Florida, Texas and other southern states during the pandemic. These states’ warm weather, business-friendly governments and laws, lower taxes and fewer regulations have been attracting companies and workers from California, the Northeast and other corners of the country.”

Off-grid movement

As home prices continue to rise, homebuyers are looking for creative ways to fulfill their housing needs. Off-grid living is gaining momentum. Diana Olick of CNBC reports on earthships, which are a growing trend of off-grid homes made up entirely of recycled materials such as cans, bottles, and tires. According to Olick, “There are now earthships in nearly every state, costing from $200 to $400 per square foot to build. They follow similar guidelines from the Earthship academy, a course which explains water systems, solar and indoor farming. They use about one-sixth the power of a regular house and are made from at least 40% recycled materials. They can also be climate resilient.”

Nick Aspinwall of the Washington Post (reported in The Philadelphia Inquirer) reports on the earthship trend, noting that “About 40% of a typical Earthship is built with natural or recycled materials, most notably foundations and walls made up of hundreds of used tires packed with dirt. These work with dual layers of floor-to-ceiling passive solar windows, which collect sun during winter and reject it in the summer to keep structures at a comfortable room temperature, no matter the weather outside.”

Further, as people become less trusting of the resiliency of power grids many are pursuing off-grid as a risk mitigator. Jennifer Hiller of The Wall Street Journal reports that 20 years ago only 0.57% of homes worth $150,000 or more had backup generators, now that number jumped ten-fold to 5.75%.

“Reliability isn’t the only driver of the power-independence trend. The cost of renewables have fallen enough that some companies are adding on-site renewable energy to reduce their use of power from the electric grid or to meet corporate sustainability goals.”

SFRs

Single-family rentals continue to grow in terms of volume and rents, according to new reports. First, Molly Boesel of CoreLogic reports that single-family rent growth increased 12% year-over-year in December 2021, the fastest increase in over 16 years.

“Rent prices for the low-price tier increased 11.2% year over year in December 2021, up from 3.9% in December 2020. Meanwhile, high-price rentals increased 11.9% in December 2021, up from a gain of 4.5% in December 2020. This was the fastest increase in the history of the SFRI for both the low- and high-price rent tiers.”

Katie Murar of Bisnow reports on the above data, noting that “[t]here was an investment emphasis on neighborhoods with a higher population of Black residents…Those neighborhoods received more than twice the number of investor home purchases compared to other ZIP codes.”

Robert Dietz of the National Association of Home Builders (NAHB) reports on data showing that the number of single-family built-for-rent (SFBFR) starts jumped 16% in 2021.

“According to NAHB’s analysis of data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, there were approximately 15,000 single-family built-for-rent starts during the fourth quarter of 2021. Over the course of 2021, 51,000 such homes began construction, which is a 15.9% gain compared to the 44,000 estimated SFBFR starts in 2020.”

Source: NAHB (Feb. 2022)

Although the share of SFBFR homes is small, it has been increasing as more people seek out less dense neighborhoods and more space.

Indeed, according to a new rentcafe.com survey reported on by Globe Street, “78% [of renters] said they were interested in living in a community of single-family homes. The survey confirmed the rising interest in single-family rentals that began to take shape last year, including on rentcafe.com, where searches for “homes for rent” tripled in 2021 compared to the previous year.”

For more on rental rates, check out Zumper’s new report titled, Why Rent Will Continue To Rise.