Charting a 22-year roller coaster of investor activity

By John Burns and Josh Kirby

Key Takeaways:

• Institutional investors (those who own 100 or more homes) are?buying less than 2% of all homes—a much lower percentage than misleading headlines imply (see the third chart below).
• Investors (including second-home buyers) purchase 25% of all homes sold.
• Rental home investors own about 9.9% of all homes in America, up from 9.0% in 2005.

Investors own and rent 14.3 million attached and detached US homes. Over the past 22 years, we’ve identified seven major shifts in investor activity that clarify today’s discussion of rental home investor and other investor activity.

7 investor periods that summarize the past 22 years

1. 2002 baseline investment: In 2002, rental investors owned about 9% of all homes in America (see the purple line in the first chart below) and were 12% of all home transactions (second chart below). This was long before Wall Street institutions got involved and home-flipping reality shows became as popular as today.

2. Easy credit boom (2003 to 2006): During the period of easy lending that ended in 2006, investors rose to 18% of all real estate transactions. Despite this activity, many homes remained vacant even as homeownership rates increased. In 2006, rental investors still owned about 9% of all homes in the US. However, many of these investors eventually lost their properties to foreclosure.

3. Airbnb home conversion boom (2007 to today): Airbnb was founded in 2007, and investors continue to convert homes to “hotels” (aka short-term rentals) today. The growth in rental homes is hard to estimate, but we are confident it is less than two million homes since there are about two million home rental listings each month. This figure includes rooms in homes and homes available for short-term rental before Airbnb was founded.

4. Foreclosure boom (2007 to 2013): Investors rose to 24% of transactions at the peak of the housing crisis in 2013, as subprime (and other) borrowers and early 2000s “easy credit boom” investors lost their homes. Large rental home investors (owning 1000+ homes) emerged, making up around 2% of activity and generating press due to their impact on major foreclosure markets like Atlanta and Phoenix. New technology and data allowed these groups to estimate home values and rents efficiently, facilitating this institutional boom. Overall, rental investors increased their ownership of US homes from 9% to 11%, with large investors owning less than 1%. Activity by small investors still dwarfed that of large investors.

5. iBuyer boom begins; foreclosure boom ends (2014 to 2020): Investors fell to 18% of transactions by 2020 as foreclosures declined. A new category of investors called iBuyers grew during this time. iBuyers offer a solution for home sellers willing to accept a lower price in exchange for the certainty of closing. This allows the sellers to make non-contingent bids on their next home and avoid the risk of needing to move twice or make simultaneous housing payments. Institutional buying activity received a lot of press during this period as the large rental and iBuyer companies became publicly traded. While this happened, the number of rental homes in America began declining as many smaller investors sold their homes for a profit. This decline received almost no attention in the press.

6. Low-interest-rate home price boom (2020 to 2022): Investors climbed to 26% of the market by 2022 when rental yields far exceeded Treasury yields. This attracted a plethora of capital from all sizes of investors to the rental home industry. Newly built rental homes, known as build-to-rent, also grew dramatically. Rapid home price appreciation attracted home flippers, with homes frequently transacting twice in one year. However, the overall decline in rental homes continued as small rental home investors sold their homes to homeowners for huge gains—which also got very little attention.

7. Rising rates cause decline (2022 to 2024): Investors remained a relatively consistent 23%–25% of the market through early 2024, with both investor and owner-occupant activity declining due to rising interest rates. Large rental investor groups began selling more homes than they were buying, and small rental investors continued selling, dropping rental homes to 14.3 million homes (9.9% of all homes in America).

The bottom line

Investors play a considerable role in the housing market, comprising 25% of residential real estate transactions today versus just 12% in 2002. These investors come in many shapes and sizes that need to be analyzed separately, which is what our Research team does. We provide timely insight into what is occurring today so our clients can navigate tomorrow.

*This total excludes second homes and vacant homes. 2.9 million of the 14.3 million homes are attached homes, including townhomes and condos.