In today’s real estate market, investors are making waves, particularly in affordable metropolitan areas. These investors, often cash buyers with deeper pockets and more leverage, are snapping up properties at a record pace, leaving many would-be first-time homebuyers struggling to compete.
With property prices low and rent prices high, these hot markets are becoming increasingly attractive to investors, driving up demand and pushing regular homebuyers out.
The Investor Surge
Investors have a significant advantage in the market. Their ability to make quick, all-cash offers often puts them ahead of traditional homebuyers who rely on mortgage financing. According to a comprehensive report by Realtor.com, based on deed records across the country, small investors have outpaced large investment firms in the 150 largest U.S. metros, purchasing single-family homes, condos, townhomes, and row houses from January 2000 to March 2024.
Small investors—those who have bought fewer than ten properties since 2001—are increasingly dominating the market. From January to March 2024, small investors accounted for 62.6% of all investor purchases, a 6.4% increase from the same period in 2023. While these local investors might seem less intimidating than large firms, they still pose a challenge to first-time buyers.
Impact on First-Time Homebuyers
The growing presence of investors in the housing market presents a significant risk for first-time homebuyers. Competing with cash offers from investors can be daunting, particularly for those looking to secure a mortgage. Investors are particularly active in the Midwest and Southern metropolitan areas, regions traditionally affordable for first-time homebuyers. This influx of investor activity reduces the availability of affordable homes, making it even harder for Millennials and other first-time buyers to achieve homeownership.
In March 2024 alone, investors purchased approximately 8,000 new properties. These purchases are often in cities where the median home price is still relatively low, making them attractive targets for investment.
Top Cities for Investors
Let’s take a closer look at the top five cities where investors are most active in 2024:
- Savannah, GA: Investor activity is up 8.3%.
- Youngstown-Warren-Boardman, OH-PA: Up 7.9%.
- Peoria, IL: Up 7.2%.
- Springfield, MA: Up 6.4%.
- Montgomery, AL: Up 6.3%.
Despite significant price growth since 2019, these areas still have home prices below the national median, making them particularly appealing to investors.
Here’s a summary of the top markets by investor share:
| Metropolitan Area | Median Home Price | Investor Share of the Market |
|---|---|---|
| Springfield, MO | $247,028 | 20.5% |
| Kansas City, MO | $287,115 | 20.1% |
| St. Louis, MO | $203,667 | 18.9% |
| Birmingham, AL | $225,833 | 18.7% |
| Memphis, TN | $223,135 | 18.2% |
What This Means for Homebuyers
For first-time homebuyers, the good news is that many small investors also rely on financing to make their purchases. This means not all investors are making all-cash offers, potentially leveling the playing field somewhat. However, with these markets growing rapidly, it’s crucial for homebuyers to act quickly.
If you’re looking to buy your first home, consider leveraging debt as many small investors do. Find the best mortgage lenders for first-time buyers who can guide you through the process. Interest-only loans can also be an option while you prepare your home or rental property.
Final Thoughts
As investors continue to target affordable markets, regular homebuyers need to stay informed and proactive. Understanding the dynamics of the current real estate market and the areas where investors are most active can help buyers make strategic decisions. Working with knowledgeable mortgage lenders and exploring various financing options can provide a competitive edge in a challenging market. The key is to be prepared, act swiftly, and leverage the resources available to secure your dream home amidst a sea of investor activity.
