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Institutional Investors Are Stiff Competition for Homebuyers

“Investor” covers many types of buyers, but their ability to offer cash helps them gain a foothold in a type of investment largely unaffected by the pandemic.

FORT WALTON BEACH, Fla. – Lisa Bishop is a real estate agent in Fort Walton Beach, Florida, a small city on the Gulf Coast. Lately, she said, investment groups have been snapping up single-family homes, either to fix up and flip or to rent out for the income. A recent client, a first-time buyer, bid on six houses, only to be out-bid each time, often by cash offers.

“It’s great for sellers,” Bishop said. “It’s very discouraging for your average buyer.”

Investor sales are up 65% in Fort Walton from a year ago, according to a recent report from John Burns Real Estate Consulting. They’re up 54% in Flagstaff, Arizona, 41% in Tulsa, Oklahoma. Overall, investors make up about 20% of U.S. housing sales.

“Investor” is a big umbrella, said the firm’s director of research, Rick Palacios Jr. Some are iBuyers, like Offerpad and Opendoor, which make instant cash offers on homes and sell them soon after. Others are buying second homes or vacation rentals. But Palacios said more and more of them are institutions, like pension funds, sovereign wealth funds and insurance companies chasing profits.

“Groups that weren’t investing in the U.S. housing market, namely along the lines of single-family rental, realized, ‘Oh, my gosh, this is an asset class that has been doing well pre-COVID and is thriving during COVID – we should take a look,’” he said.

With global interest rates so low, investors are looking for higher yields than they can get in the bond market, Palacios said.

They’re also looking ahead, said Ralph McLaughlin, chief economist at Haus, a real estate finance company. “I think there’s some expectation that inflation is going to rise, and real estate traditionally has been a great way to hedge against inflation,” he said.

The added competition for so few houses is further driving up prices for everyone. Eventually, Lisa Bishop’s client in Florida gave up looking. “They said they’ll just sign another year’s lease,” Bishop said. “Hopefully the market will calm down by next year.”

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