According to a recent Clever Real Estate survey, 90% of real estate investors say being a landlord comes with challenges — including chasing down tenants for rent and fielding complaints from neighbors, not to mention the hassles of maintenance and repairs that can crop up weekly or even daily.
On top of that, 62% of American real estate investors believe they’ve contributed to high home prices. This conclusion likely has the most significant impact on low-income or first-time homebuyers, as the same percentage of investors say they target starter homes.
Are investors right to blame themselves? Not necessarily. While they are buying up about a quarter of all single-family homes, several other factors are at play — none of which will surprise investors or buyers.
“The investors are one component of many,” says Marc Moffitt, a lecturer of real estate at The University of North Texas G. Brint Ryan College of Business. “The overall supply and demand, the national shortage of housing, and low interest rate fed policy are larger factors.”
The impact of real estate investors on home prices — and more specifically, a first-time buyer’s ability to purchase a home — often comes down to deep competition in a shallow market.
What Properties Are Investors Buying?
Single-family homes are the most popular choice for real estate investors; nearly three in five (58%) of those surveyed specialize in these properties. However, in many cases, the homes that investors purchase aren’t necessarily ones that would attract homebuyers — at least, not initially.
For instance, 67% of investors would consider properties with squatters, while 65% would buy those with foundation issues. About six in 10 investors would buy a home in an area with a high risk of natural disasters like floods and hurricanes.
These are generally properties at the lowest end of the market, which investors can flip and sell for a profit. In many cases, such properties wouldn’t go on the market at all or would instead be a quick sell-by-owner.
In contrast, homebuyers commonly think in the long term and tend to look for turnkey properties.
“Most buyers would have difficulty buying them because you’ve got a down payment component there, and then you’ve also got the amount of capital that you have to put into that property to repair it and get it back up to speed even if you get a deal on it,” Moffitt said. “It usually doesn’t work out very well for most buyers.”
Real estate buyers target more than just single-family residences. Investors follow the money and see small, multi-unit properties and townhomes as just as profitable, meaning more competition for low-income buyers likely priced out of traditional homes.
Which Markets Are Investors Impacting?
To turn a profit, real estate investors must be selective. Just 39% of those surveyed won’t touch property in an undesirable location, while 26% stay away from properties covered by a homeowners’ association (HOA) — about one-third of U.S. homes. Many HOAs restrict rentals and enforce strict home design and maintenance policies.
Investors tend to look at homes at the lower end of the market. Clever says 56% of house flippers look for homes selling for $500,000 or less. Moffitt believes the actual number may be even lower — around $350,000 or less. As a result, first-time and low-income homebuyers feel the brunt of the competition.
“More buyers and more demand mean higher prices,” adds Moffitt. “Somebody looking to get into the market has to find a way to get in and buy something, or else the market will escape them. They won’t be able to keep up with it.”
For the first time in 2024, the median sale price of a new home fell below that of an existing home — $417,400 versus $419,300. This shift may incentivize homebuyers to consider new construction, leaving more existing properties for investors.
However, the U.S. is short an estimated 4 million to 7 million homes, and not nearly enough new ones are being built to keep pace with population growth. New homes tend to be large homes on large lots, which first-time homebuyers don’t need or can’t afford.
Are Real Estate Investors Really To Blame for High Prices?
Considering the skewed supply and demand of affordable homes, investors can’t take all the blame for high home prices. The threats they see for future investments — high interest rates and continued inflation — also drive prices up.
Moffitt blamed the federal government’s pumping of cash into the economy in 2020. “Anything that could be financed went up in value due to the free money policy,” he said. “Now, the asset values are still elevated, and the payments are unaffordable for most people.”
In mid-July, the average rate for a 30-year mortgage was 7.28%. Based on the median price of an existing home and a 20% down payment, the monthly payment would be about $2,854. That doesn’t include fees and agent commissions.
The Fed has indicated that it will likely cut rates later this year, which could ease prices for buyers. However, that won’t fix supply issues. JP Morgan economists estimate it will take anywhere from 3.5 to 5 years to stabilize the housing market, depending on the size of the city.
How Can Local Governments Encourage Traditional Buyers?
As first-time and low-income buyers wait out high prices, some state and local governments take steps to help consumers compete with investors. Utilized strategies include establishing or increasing homestead exemptions for owner-occupied properties or embracing affordable housing projects through zoning and development codes. Moffitt suggests mobile home communities could be a good solution.
“I think HUD and the FHA can do some work on that,” he said. “The federal government can get involved to help promote truly affordable housing in these communities.”
Local governments can also place tighter restrictions on rental properties. Several cities, counties, and states already restrict short-term rentals. More than half of real estate investors surveyed say it’s hard to keep up with local rental regulations.
While the reasons are varied, two things are clear: real estate investors aren’t solely to blame for the housing affordability crisis, and this crisis isn’t going anywhere anytime soon.
