It’s becoming harder and harder for first-time buyers to get their toe in housing market waters. The pool of smaller, affordable homes that first-timers often buy has been and continues to be low.

That pool is becoming even lower as more and more investors, both small “mom and pop” and large institutional investors, continue to buy up affordable housing units to either “fix and flip” or rent. In fact, according to CoreLogic, the rate of investor purchases of starter homes has nearly doubled in the last 20 years.

Tonya Jones, a real estate agent in metro Atlanta, told National Public Radio (NPR) that first time buyers simply cannot compete with investors for small, affordable homes. “First time buyers typically put down 3%-5% of the purchase price while investors typically are all-cash buyers who can close the deal whenever the seller is ready to close.”

Additionally, the number of small “mom and pop” investor purchases within the investment sector of the residential market has grown from 48% in 2013 to 60% of investor purchases in 2018, according to CoreLogic. NAR, National Association of REALTORS ®, believes it is this “mom and pop” sliver within the investment sector that is driving up “affordable” prices. For example, in May 2019 the median price of an existing home (all types) was $277,700, a +4.8% increase from May 2018. And, the median price of a single-family detached home increased +4.6% by hitting $280,200.

Jones, a small investor herself, told NPR that she is not buying new properties due to such rising prices. “Investors count on (price) appreciation. We are now at a pretty elevated price point so it’s hard to imagine the current price/square footage getting any higher.”

Lawrence Hun, chief economist with NAR, agrees with Jones. “If first-time buyers are less capable of buying homes (than investors), we will have a strange situation where the economy could be good while the homeownership rate will be underperforming by historical standards. ((Such a situation) of investor buying could lead to further wealth inequality as (current) homeowners and investors profit and non-homeowners (first-time homeowners) are left behind.”

In 2018, eight of the ten metro areas with the highest investor purchase rate were in the eastern half of the US, according to CoreLogic. Investor purchases in Detroit represented 27% of all home sales; in Philadelphia, investor purchases represented 23.3% of all home sales; and in Memphis, 19.7% of all home sales were investor purchases. The least investor purchase activity occurred in Ventura CA and Boise ID at 4.8% and in Oakland CA at 5.1% of all home sales.


[mashshare]