A Federal Way walker. A four bedroom Covington room with a ‘cozy gas fireplace’. A light blue two-story house in an Auburn subdivision.
Since the start of the pandemic, these and more than a dozen other homes in King County have sold just days after they were listed. But unlike others in the region’s hot housing market, the homes didn’t go to buyers trying to get their hands on their prime or looking for larger suburban homes to work from home.
The buyer was Invitation Homes, a real estate management company that rents out some 80,000 homes across the country and was founded by Wall Street giant Blackstone after the financial crisis (later sold by the investment firm).
Invitation Homes is part of a small but growing pool of homebuyers in Seattle: investors ranging from small flippers and landlords to large-scale investment companies.
The proportion of Seattle area homes being sold to investors has risen steadily over the past two decades — from about 3% in 2000 to 9% this fall — according to data released by redfin this week. Other measures vary depending on how “investor” is defined. These vary from 6% to 29% of all home sales.
It’s not just here. Across the country, Wall Street landlords, pension funds and flippers want to take advantage of the rapid rise in house prices and rents. That puts them in competition with first-time buyers trying to forge their way to the country’s main source of wealth: owning their own home.
Nationally, investors bought a record 18% of homes sold in the third quarter of this year, with investors increasingly opting for single-family homes, according to Redfin.
“Investors eager to buy homes will be competing against people who want to live in them,” said Daryl Fairweather, chief economist at Redfin.
Still, investors alone can’t explain Seattle’s increasingly distant housing market. Individual buyers with cash from inventories or the sale of their latest home are driving bidding wars, sometimes with all-cash offers.
“We have scarce housing and a lot of people who work here and make a lot of money,” said Gregg Colburn, an assistant professor at the University of Washington who has studied institutional investor practices and has a forthcoming book on housing and homelessness. . “To a certain extent, we created our own problem.”
It’s a common story in Seattle’s competitive market: After a grueling search for their first home and multiple failed offers, software developer Johnathan Lyman and his wife found themselves one of at least 20 parties making offers for a four-person home. bedrooms in Auburn.
They were among the highest bids, but had to take some extra serious cash (essentially a non-refundable deposit to the seller) to win. The house was listed for $480,000. In the end, they paid $550,000.
It didn’t take a Wall Street firm to wage that bidding war. “Us individual buyers had absolutely no qualms about pushing the price up,” Lyman said.
In the years following the housing crash in 2008, investor purchases rose. Due to bankruptcies, house prices fell and the number of tenants increased. A flood of large investors tried to capitalize and more single-family homes were rented out.
Rising home prices have narrowed some profit margins, but Redfin says investor interest is especially high in Sunbelt cities such as Atlanta, Phoenix and Miami.
Economists say a range of factors are driving investor interest: Interest rates are low, rising house prices promise good returns on investment and investors can catch up on purchases they put off last year, said Thomas Malone, an economist at CoreLogic.
Rapidly rising rents and an end to pandemic tenant protection promises greater returns for investor landlords.
New trends can also play a small role. Algorithm-based flipping, known as iBuying, is likely responsible for about 10% of the increase, Malone said. Build-to-rent projects, where investors build single-family homes specifically for rental, are becoming more common.
“It’s a chicken-and-egg thing,” Malone said. “Are investors making the high prices or are they seeing high prices and chasing them?”
In the Seattle area, people who want to rehabilitate and want to resell or rent homes “see the opportunity” because of the high price hike and easier access to financing, said Jim Melgard, vice president of sales at Eastside Funding, which lends money to investors. He estimates that his business is about 70% pinball and 30% landlords.
Analyzing the proportion of Seattle buyers seeking investment properties, and the number of house flippers versus landlords, is complex. That makes it harder to follow and understand the implications. King County, for example, registers more than 60,000 deeds a year and could not provide a breakdown of the top investors. Large corporations can use multiple LLCs.
To estimate the number of investors, Redfin searched for buyers whose names included one of a handful of keywords in purchase documents, such as “LLC,” “Corp,” “joint venture” and “corporate trust.”
Their records may include some buyers who plan to live in their home but use a family trust or an LLC to close the deal. LLCs, which hide the identity of the buyer, are a common tactic for wealthy buyers.
Another measure, by ATTOM Data Solutions, was only aimed at institutional investors who bought at least 10 properties in a year. They accounted for about 6% of single-family home and apartment sales in Seattle, Tacoma and Bellevue in the third quarter of this year, up from 2% at the same time in 2020.
A broader view finds a much higher share. CoreLogic counts any person or company that owned three or more properties at once in the past decade as an investor. By that measure, 13% of sales of single-family homes in the Seattle area went to investors last year. In September: almost 29%.
This approach can count an investor’s personal property along with their investments, but is likely to reflect more small-scale investors than the other counts, CoreLogic’s Malone said.
According to Redfin, some of the areas near Seattle with the most interest from investors are also some of the wealthiest: Medina, Bellevue, Mercer Island and Kirkland. Zip codes in Shoreline and the University District also saw high investor purchases.
The concentration on the Eastside, where the median home price is nearly $1.4 million, “speaks to wealth inequality,” Fairweather said.
Pricey areas are a safe bet, because “there will be people who want to live in Bellevue and on the waterfront. Those people are getting richer and they’re going to be able to afford higher rents, they’ll be able to afford higher house prices,” she said.
More affordable areas like Federal Way, Kent, Auburn and Tacoma are also attracting interest from investors, including those looking to flip, Melgard said. “People have started expanding into Aberdeen and Centralia,” he said.
Even without investors, prices are rising
Meanwhile, individual buyers have been looking at new tactics for competing in the competitive market in recent years.
To provide more cash, buyers in the Seattle area are leveraging stock, equity from the sale of their last home, gifts from relatives and, occasionally, cryptocurrency, said Aaron Crossley, a lender at Kirkland-based Caliber. Home Loans.
Buyers often waive protections, such as their right to inspection. And after heartbreaking searches, some find that they are offering more and more money to try and win.
“Investors have a bottom line,” said Ann Nordling, owner and managing broker of the TRI STAR team at RE/MAX. “End users tend to be more emotionally attached to the outcome and willing to pay more.”
The region faces a shortage of owner-occupied and rental housing, with thousands of low-wage workers commuting more than 40 kilometers to work in Seattle. From 2005 to 2019, Seattle more added than 169,000 new jobs and only about 84,000 new homes.
Since 2016, home prices in the Seattle area have increased by nearly 70%. Rents in the metropolitan area have increased by 23% in five years. Meanwhile, Washington has seen one of the largest rises in homelessness in the country.
“We need big commitments to housing production that we just haven’t made until now,” said Colburn of the UW. “We need a competitive, labor force and affordable and supportive housing for people who are homeless. Each of those on its own, in my opinion, is not enough.”