Buying a Home in Austin has never been more difficult.
May 19, 2022 | Front Porch Realty
Investors are flooding the Austin area housing market and are among those competing to own a home in Austin.
According to the real estate data firm CoreLogic, investors made up less than 20% of single-family homebuyers in the Austin area between 2010 and 2020. Last year, that changed: Investors bought about one-third of all the single-family houses sold in the metro area.
“This makes sense. It is a city that has been growing, prices have been growing there, population is growing, the economy is growing,” Thom Malone, an economist with CoreLogic, said. “[Austin] represents a good potential return for investors.”
CoreLogic defines investor broadly. The firm considers an investor either a non-individual — an LLC, for example — that has purchased a home or an individual buying up three or more properties at once.
Malone said several factors may be influencing investors’ decisions to jump into the Austin housing market. For one, federal and local eviction bans have ended, meaning that buying a home to rent out poses less of a financial risk.
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Plus, as the median sales price of a home in Austin rose nearly 28% last year, homebuying feels like a guaranteed big return on investment.
“Investors may be seeing — Oh, housing is getting a relatively better return than our other assets right now, so that’s where I’m going to choose to invest,” he said.
Malone said it looks like more investors are holding onto these homes and renting them out in lieu of remodeling and reselling them.
“We have seen in Austin a slight uptick in investors buying new construction. That is some indication that they’re not looking for flips necessarily, because no one flips new construction,” he said.
As long as rent prices continue to climb, renting out these homes is a good deal, according to Greg Hallman of UT Austin’s McCombs School of Business Real Estate Center. In the past year, rent prices in Austin have risen faster than ever recorded.
“As long as the demand for rental housing stays strong in Austin — and it appears that it’s going to — investors feel like they can count on their rental income,” he said.
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Interest from institutional investors
While it’s not entirely clear which investors are fueling the rise in single-family home sales in Austin, a larger percentage of institutional investors are buying homes in the area. (Institutional investors are companies that invest on behalf of individuals.)
According to numbers from the real estate data firm ATTOM, nearly 10% of all single-family homes and condos sold in the Austin area in 2021 went to institutional investors; that’s the highest share in the past two decades, which is how far back data was available.
Individuals find it harder to buy
When investors bid on homes in Austin, their offers are often hard to pass up. Investors can often make cash-only offers, so the sale can happen more quickly; a seller doesn’t have to wait on a buyer to line up a mortgage or get an appraisal to make sure the house is worth what it’s selling for.
“Investors often have a very big advantage that first-time homebuyers don’t have,” Heather Way, a professor at UT Austin’s School of Law, said. “They’re flush with cash. … So, they come in ready to buy and ready to close on that property really quickly.”
Individual homebuyers typically have to qualify for and secure mortgages, which take time to process. Some, especially first-time homebuyers, may also have a limited amount of cash, making it harder to compete in a market where offering over listing price is now the norm.
Realtor Mindy Suggs said she’s worked with several individual homebuyers who cannot compete in a cash-heavy market. She said some have just stopped looking altogether.
“’We’re just not going to do it anymore,’” Suggs said one couple told her. “’We can’t.’”
But Rick Sharga, an executive vice president with real estate data company RealtyTrac, said investors are not the only ones to blame for cash-only offers.
“I think one of the big misperceptions in the market right now is that people are equating all-cash purchases with investor purchases,” Sharga said. Some families could be selling their homes in more expensive housing markets, like California, and moving to Texas with half a million in cash, he said.
“While the majority of investors are all-cash, we’re seeing a higher and higher number of all-cash purchases coming from traditional homebuyers,” Sharga said.
In 2021, 30% of all homes in the U.S. were purchased with cash, according to ATTOM. Data for the Austin area was not readily available.
Sharga said investor involvement in the Austin housing market could be partly to blame for higher prices, but not necessarily because investors are overbidding.
“I don’t think investors are necessarily guilty of overpaying, but they certainly add a layer of competition to a market that’s already extremely competitive,” he said.
While builders in Austin have been constructing a lot of new housing, experts say it's still not enough to keep up with the demand — both from investors and individuals.
“I think it's also easy to make investors like a scapegoat in all of this,” Way said. “But the reality is the biggest drivers of our local affordable housing crisis is about the supply shortage of single-family homes and other types of homes for sale.”
