Private Equity Investors Getting Into Residential Real Estate – It’s a New World

February 14, 2022

In the real estate world, one of the more influential changes happening is the increasing importance of private equity investment firms in the market. Here’s a look at the state of the trend.

Investor Market Share: National Basis

The case in point comes from the following graph. It shows the investor market share (on a national basis) of the total home sales in which an investor was the buyer. In the first quarter of 2000, that share stood at 7 percent. It has continued on an upward trajectory ever since. The most recent estimate out of RedFin is 18 percent in the third quarter of 2021. That’s almost one in every five homes being purchased by an investor! The residential housing market is changing.

Source: RedFin

Investor Purchases: National Basis

The next view of the state of the market is investor purchases (on a national basis). This measure stood at 24,291 in the first quarter of 2021. It grew quickly to a high of 55,065 in the third quarter of 2005 – just prior to the end of the U.S. housing market boom.

After peaking in 2005, investor interest soured, dropping to a low of 10,535 in the first quarter of 2009. Since then, investors have been picking up residential homes at an astonishing pace. The most recent estimate from RedFin has the number of investors purchasing residential homes in the third quarter of 2021 at 90,215. Incredible, simply incredible!

Source: RedFin

Year-over-Year Growth in Investor Purchases

A third view of the state of the investor interest in residential housing is the following, showing the year-over-year growth in investor purchases (on a national basis). Recent growth rates – the error of historically low interest rates – have investor growth at +148 percent in the second quarter of 2021 and at +80 percent in the third quarter. These two figures were the strongest growth rates we’ve seen from investors –ever!

Source: RedFin

A Fourth View: Investor Market Share by Property Type

A fourth view of the investor interest – our final view here – is of investor market share by property type. The property market with the highest share is, unsurprisingly, multi-family (2-4 units). In the third quarter of 2021, investor share stood at 26 percent, down from a 2019 peak of 34 percent.

The property type with the largest jump in recent months has been single family residential, up from 10 percent in the second quarter of 2020 to 19 percent in the third quarter of 2021.

Source: RedFin

Summing Up

Overall, the real estate world is changing, and by some measures, by a lot. One of the most influential changes on the real estate horizon – if current trends continue – is the increasing importance of private equity investors in the residential real estate market. Over the coming years, private markets and society in general will need to digest what it means for more homes to be owned by private equity companies. There are certainly advantages and disadvantages to the new trend.

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