Corporate investment in residential real estate set records in 2021, with private equity and public funds snatching up nearly 1 in 5 U.S. homes by the end of the year.
But the Bay Area? Nope. Investors bought up just 4% of the homes sold in the San Jose metro area, and 6% in San Francisco and the East Bay last year – about the same level as 2015, according to an analysis of data from online broker Redfin. Investment ticked up at the end of the year but did not match the overall U.S. rate.
Agents say high Bay Area prices mean rental cash flows sound more like drip, drip, drip, while homes in cheaper cities in the South and Midwest provide rivers of income.
“Investors want high returns,” said Redfin chief economist Daryl Fairweather. “The Bay Area is kind of past its heyday.”
The analysis refutes a common complaint from homeowners and slow-growth activists – that corporate real estate giants are pushing into the Bay Area, gobbling up property and driving up home prices. Instead, real estate agents and economists say the region’s high prices are being driven by near-record-low numbers of homes for sale and strong demand from wealthy tech workers and millennials. Bay Area home values rose almost 20% last year, and the median price for a single-family home has topped $1 million in recent months, according to CoreLogic data.
Homeownership is a central way for families to build wealth – buy a house, pay the mortgage, and, historically, get a property that gains value while providing a place to live. “It’s easy,” said Fairweather.
But in much of the country, buyers are facing new competition – from large, cash-rich companies – in the battle to purchase a family home and start building equity.
The share of single-family homes, condos and small apartment buildings bought by investors in the San Jose metro was 4% in 2015 and in 2021, according to a Washington Post analysis of Redfin data. In San Francisco and the East Bay, the share of investor purchases fell slightly from 7% in 2015 to 6% in 2021.
But nationally, investor purchases jumped from about 12% at the end of 2015 to 18% at the end of last year, according to Redfin researchers. Investor activity reached record highs in 2021, at least since Redfin began tracking the data in 2000. Single-family homes made up about three-quarters of the purchases, with condos and townhomes the next most popular investments.
Between 2000 and 2008, investor purchases made up between 6% and 10% of all U.S. home purchases, Redfin data shows. After dipping in the early months of the pandemic, investor shopping has taken off even in the Bay Area.
In the final three months of 2021, investors accounted for 12.6% of home purchases in Oakland, with a median price of $990,000, according to Redfin. In San Jose, investors made 12% of purchases, with a typical price of $1.7 million. In San Francisco, investors bought 18% of the homes sold, with a median price of $2.1 million.
The hottest region for investors was the Atlanta metro, where 1 in 3 homes was bought by corporate interests. Similar investor frenzy was seen in Charlotte, N.C., Phoenix, Las Vegas and Miami.
Redfin researchers used two decades of county property records and searched for purchases where a buyer was listed as a trust, limited liability company or other corporate entity.
Fairweather said strong corporate activity typically pushes up prices and pushes out other buyers, especially first-time purchasers and families with lower incomes and savings. But the new investments should also spur additional home construction, she said.
“We need more housing supply, anywhere we can get it,” she said.
Local agents say Bay Area landlords have been more willing to sell and invest in out-of-state properties. Bay Area mortgages on single-family homes typically exceed potential monthly rental income – meaning investors’ long-term gains are only realized when home values increase and they sell the property.
Santa Clara broker Myron Von Raesfeld has opened an office in North Carolina to serve Bay Area investors looking to relocate or shift their real estate portfolios. He hasn’t seen a lot of investors rushing to buy single-family homes in the Bay Area recently, but he’s served tech professionals looking to trade in some of their stock holdings for out-of-state property.
One client sold a single-family home in Santa Clara for $1.7 million, Von Raesfeld said. She bought five rental homes in the Raleigh-Durham region of North Carolina with the proceeds.
Another client sold a duplex in the South Bay, and turned it into about a dozen apartments in North Carolina. The North Carolina properties are generating about three times the rent that the South Bay duplex provided, he said.
“It’s just the difference of the marketplaces,” he said.
San Jose real estate advisor Paul Getty of First Guardian Group said investor buying and selling last year was unlike anything he had seen in his decades-long career. Bay Area property owners have been looking for deals in the Southwest and Southeast, seeking greater returns on their investments, he said.
“The movement out of California,” he said, “has really become like a tidal wave.”
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