So you can’t afford a house in Seattle. Are investors to blame?
A Federal Way hiker. A four bedroom Covington with a ‘cozy gas fireplace’. A pale blue two-story house in an Auburn subdivision.
Since the start of the pandemic, these homes and more than a dozen other homes in King County have sold just days after listing. But unlike others in the area’s buzzing housing market, the homes haven’t gone to buyers trying to get their first spot or looking for bigger suburban homes to work from home.
The buyer was Invitation Homes, a property management company that leases some 80,000 homes across the country and was set up by Wall Street giant Blackstone after the financial crisis (and later Sold by the investment firm).
Invitation Homes is among a small but growing share of Seattle home buyers: investors ranging from small homeowners and homeowners to large-scale investment firms.
The share of Seattle-area homes sold to investors has grown steadily over the past two decades – from about 3 percent in 2000 to 9 percent this fall – according to data released by Red tuna this week. Other measures vary depending on the definition of “investor”. These range from 6% to 29% of all home sales.
It’s not just here. Across the country, Wall Street owners, pension funds and fins are looking to take advantage of rapidly rising house prices and rents. This puts them in competition with first-time buyers who are trying to find their way into the country’s main source of wealth: home ownership.
Nationally, investors bought a record 18% of homes sold in the third quarter of this year, and investors have increasingly turned to single-family homes, according to Redfin.
“Investors who want to buy homes are going to pit themselves against people who want to live there,” said Daryl Fairweather, chief economist at Redfin.
Yet investors alone cannot explain Seattle’s increasingly inaccessible housing market. Individual buyers with money from inventory or the sale of their latest car auction war, sometimes with all-cash bids.
“We have scarce housing and a lot of the people who work here are making a lot of money,” said Gregg Colburn, an assistant professor at the University of Washington who has studied the practices of institutional investors and who has a book forthcoming on the housing and roaming. “To a certain extent, we created our own problem.
It’s a common story in the competitive Seattle-area market: After a grueling search for their first home and several unsuccessful offers, software developer Johnathan Lyman and his wife found themselves among at least 20 parties making offers. for a four bedroom house in Auburn. .
They were among the highest bids, but had to pay extra money (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 company to wage this bidding war. “We, the individual buyers, have had no problem driving up the price,” Lyman said.
“Seeing the opportunity”
In the years following the 2008 real estate crash, investor purchases skyrocketed. The foreclosures have lowered house prices and increased the number of tenants. A flood of big investors sought to capitalize and more and more single family homes became rentals.
Today, rising home prices are squeezing some profit margins, but investor interest is particularly high in Sunbelt cities such as Atlanta, Phoenix and Miami, according to Redfin.
Economists say a range of factors are boosting investor interest: Interest rates are low, rising house prices promise a good return on their investment, and investors could make up for purchases they postponed. last year, said Thomas Malone, economist at CoreLogic.
Rents on the rise and the end of tenant protection in the event of a pandemic promises more returns for owner investors.
New trends might also play a small role. The turnaround based on an algorithm known as iBuying is likely responsible for around 10% of the rise, Malone said. Rental construction projects, in which investors build single-family homes specifically for rent, are increasingly common.
“It’s all about the chicken and the egg,” said Malone. “Do investors create high prices or do they see high prices and pursue them? ”
In the Seattle area, people looking to rehabilitate and resell homes or operate rentals “See the opportunity” because of the high price appreciation and easier access to finance, said Jim Melgard, vice president of sales at Eastside Funding, which lends money to investors. He estimates that his business is made up of around 70% fins and 30% owners.
The analysis of the proportion of Seattle buyers looking for investment property and the number of owners versus owners is complex. This makes it more difficult to follow up and understand the implications. King County, for example, registers more than 60,000 deeds each year and could not provide a breakdown of top investors. Large companies can use more than one LLC.
To estimate the number of investors, Redfin looked for buyers whose names in the purchase documents included one of a few keywords, such as “LLC”, “Corp”, “joint venture” and “trust”. business “.
Their data may include some buyers who are planning to live in their home but are using a family trust or LLC to close the deal. LLCs, which conceal the identity of the buyer, are a common tactic for high net worth buyers.
Another measurement, carried out by ATTOM Data Solutions, only looked for institutional investors who bought at least 10 properties per year. These accounted for about 6% of single-family home and condo sales in Seattle, Tacoma and Bellevue in the third quarter of this year, up from 2% in the same period in 2020.
A wider look finds a much higher share. CoreLogic counts as an investor any person or company that has owned three or more properties at the same time in the past decade. According to this measure, 13% of last year, sales of single-family homes in the Seattle area went to investors. In September: nearly 29%.
This approach can count an investor’s personal assets along with their investments, but is likely to reflect more small-scale investors than other accounts, said Malone, of CoreLogic.
By Redin’s measure, some of the areas near Seattle with the most investor interest are also among the wealthiest: Medina, Bellevue, Mercer Island, and Kirkland. The Shoreline and University District zip codes also saw significant buys by investors.
The focus on the Eastside, where the median home price is nearly $ 1.4 million, “speaks to the inequality of wealth,” Fairweather said.
Expensive neighborhoods are a safe bet because “there will continue to be people who want to live in Bellevue and on the water. These people continue to get richer and they will be able to afford a higher rent, will be able to afford higher prices for houses, ”she said.
More affordable areas like Federal Way, Kent, Auburn and Tacoma are also attracting interest from investors, including those looking to turn around, Melgard said. “People started to spread to Aberdeen and Centralia,” he said.
Even without investors, prices go up
Meanwhile, individual buyers have been looking for new tactics to compete in the competitive market in recent years.
To offer more cash, Seattle-area buyers are tapping into stocks, equity from the sale of their last home, gifts from family members and, sometimes, cryptocurrency, said Aaron Crossley. , a Kirkland-based Caliber Home Loans lender.
Buyers frequently forgo protections, such as their right to an inspection. And after heartbreaking research, some find themselves offering more and more money to try and win.
“Investors have a bottom line,” said Ann Nordling, owner and manager 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 homes to buy and rent, and thousands of low-wage workers travel more than 25 miles to work in Seattle. From 2005 to 2019, Seattle added more over 169,000 new jobs and only around 84,000 new homes.
Since 2016, home prices in the Seattle area have climbed nearly 70%. Rents in the metropolitan area have increased 23% in five years. Meanwhile, Washington has seen one of the largest increases in homelessness in the country.
“We need major housing production commitments that we just haven’t made to date,” said Colburn of UW. “We need market-priced housing, labor, and affordable, supportive housing for people who are homeless. Any of these in isolation, in my opinion, is not enough. “