ANAHEIM, Calif. — Real estate investors are gobbling up homes in Southern California, compounding the problems for first-time and other homebuyers in this red-hot housing market.
According to Redfin, investors snatched up about 1 in 5 homes in Los Angeles, Anaheim and Riverside last quarter, a 25% increase from the previous year. Three out of four real estate investors paid for the investment home in cash.
"There have always been investors in the housing market, but that was when there was a lot of supply," said Sheharyar Bokhari, a senior economist at Redfin, to Spectrum News. "More than two-thirds of investors are buying all cash and single-family homes. When they come into the market, we already know that a cash offer is likely to win. It makes it tough for regular homebuyers."
The new Redfin report released Wednesday about the housing market confirmed what many had already known: It has become a lot tougher to buy a home.
As first-time and regular homebuyers navigate through a housing crunch, escalating home prices and rising mortgage rates amid the coronavirus pandemic, they also face stiff and well-heeled competition. Redfin analyzed county property ownership records and looked for keywords such as LLC, Inc, Trust, Corp, Homes and trusts.
The report comes as Southern California's real estate market remains hot despite the pandemic and rising 30-year mortgage rates, which jumped from 3.6% in mid-January to 4.03% as of Wednesday. The lack of homes for sale on the market has driven up demand and skyrocketed prices.
Orange County began the year with 954 homes for sale. As of February, there are now a little more than 1,400 homes, which is still historically very low for the market.
According to Reports on Housing, Orange County averaged more than 4,800 homes for sale in the month of February in the three years before the pandemic.
Simply, there are not enough homes on the market to quell demand or prices, which have increased by double digits year over year, said Steven Thomas, chief economist at Reports On Housing. This data site tracks Southern California's real estate market.
"When demand outstrips the supply, it indicates that it is an insane, outrageous, red-hot housing market where buyers are pit against each other and Darwinism ensues, survival of the fittest," said Thomas in his monthly newsletter. "In today's market, typically, the buyer that is most qualified with a great job, large bank account, strong credit score, willing to remove contingencies and bend to a seller's every whim is the victor."
Thomas said 60% of all closed home sales in Orange County last month sold above the asking price.
Seeing such high demand and record double-digit price growth not just in Southern California but across the country, more people are becoming real estate investors and jumping into the housing market, hoping to make a quick buck.
Home sellers opt to sell their homes to investors since they tend to pay all cash and remove certain contingencies, making it a quicker and seamless transaction.
"They are in a better bargaining position," said Bokhari, the Redfin economist.
Bokhari said investors have more options these days: They can fix it up and flip the home, rent it out long-term or list it as a short-term rental.
According to Corelogic, single-family rent growth in Los Angeles experienced a record-breaking year in 2021 with low vacancy rates and rent increasing 8% year over year.
"It's a profitable business," said Bokhari.
According to Redfin, in Los Angeles, 1 in 5 homes purchased last quarter were real estate investors. The median sale price — or the midpoint — of all homes purchased by investors was $1.02 million.
In Anaheim, Redfin also found that 1 in 5 homes purchased last quarter were investors. The median sale price was $1.07 million.
In Riverside, 16% of homes were bought by investors with a median price of $522,000.
Nationally, investors bought 80,000 homes, worth a total of $50 billion, or 18.4% of all homes purchased in the fourth quarter of last year.
Bokhari said as long as there is a supply shortage and home prices continue to appreciate, expect more investors to continue buying.
"If price growth does end up slowing down, then maybe they'll back off," he said.