“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.
Buzz: Homebuying investor activity in California might be elevated, but it’s still tame compared with hot U.S. markets like Arizona, Georgia or Utah.
Source: My trusty spreadsheet reviewed Attom’s data on three key slices of investors purchases in 2021’s third quarter: cash buyers (folks seeking a place to live usually don’t make mortgage-free deals), institutional buyers (big, well-financed firms acquiring homes to flip or rent) and flippers (buyers who sell within a year).
The Trend
The fickleness of investors makes this group one to watch carefully. When looking at statewide movements vs. the nation, investors represent a fast-growing but below-average slice of homebuying activity …
Cash buyers: In California, they nabbed 28.5% of sales, 21st among the states. Purchases were up 63% in a year. Nationwide, these buyers snared 34% of sales, up 59%. Largest state share? Georgia at 65%.
Institutional buyers: California’s 6.3% share ranked 18th. Their purchases were up 325% in a year. Nationwide, their 7.3% share of sales was up 208%. Top state? Arizona at 17.4%.
Flippers: California’s 5.2% share ranked 20th. Their purchases were up 19% in a year. Nationwide, they were 5.7% of sales, up 10%. Top state? Utah at 9.2%.
The Dissection
Let’s look at the big California markets, ranked by their overall number of homes, comparing cash buyers’ slice of the market and how that ranked among 165 U.S. metro areas. All-cash deals historically have peaks at market tops (as prices get too high) and bottoms (when few bankers are lending) …
Los Angeles-Orange County: Cash buyers were 28.7% of sales, No. 110 among the metros. Their purchases were up 64% in a year.
San Francisco: 23.9% share, No. 138. Up 75%.
Inland Empire: 30.3%, No. 95. Up 65%.
San Diego: 26.7%, No. 121. Up 72%.
Sacramento: 28.9%, No. 105. Up 74%.
San Jose: 21.3%, No. 152. Up 51%.
Fresno: 32.1%, No. 81. Up 89%.
Bakersfield: 30.8%, No. 90. Up 72%.
Ventura County: 24.5%, No. 132. Up 54%.
Top spots for cash buyers’ share? Columbus, Ga., at 75%; Atlanta, at 69%; Macon, Ga., 59%; and Youngstown, Ohio, at 57%.
Next, the big institutional buyers (175 metros ranked) are relatively new players, so there are no track records to handicap. Big jumps in activity come from very low levels in 2020 …
L.A.-O.C.: 6.2% of all purchases — No. 70 of the metros. Purchases were up 233% in a year.
San Francisco: 3.8% — No. 138 — up 292%.
Inland Empire: 8.1% — No. 39 — up 456%.
San Diego: 7.9% — No. 41 — up 338%.
Sacramento: 9.5% — No. 29 — up 483%.
San Jose: 4.8% — No. 117 — up 501%.
Fresno: 6.6% — No. 56 — up 205%.
Bakersfield: 6.4% — No. 62 — up 277%.
Ventura County: 5.5% — No. 91 — up 495%.
Tops for institutional shares? Atlanta at 19.54%; Phoenix at 19.5%; Charlotte at 19.3% and Jacksonville at 19.1%.
Finally, the flippers (194 metros ranked). They’ll buy and flip as long as it’s profitable …
L.A.-O.C.: 6.2% of sales — No. 77 of the metros — with purchases up 30% in a year.
San Francisco: 4% share, No. 166 — up 39%.
Inland Empire: 6%, No. 86 — up 13%.
San Diego: 6.1%, No. 80 — up 42%.
Sacramento: 3.9%, No. 168 — down 14%.
San Jose: 3.8%, No. 172 — up 37%.
Fresno: 6.3%, No. 74 — up 4%.
Bakersfield: 3.9%, No. 168 — down 44%.
Ventura County: 4.1%, No. 162 — up 49%.
Top for flipper’s share? Phoenix and Ogden, Utah, at 9.5%; Salt Lake City and Salisbury, Md., 9.3%.
Another view
I know some Californians pine for Phoenix, but its real estate is kind of insane …
Cash buyers: 43% of sales, No. 26 of the metros. Change? Up 96% in a year.
Institutional buyers: 19.5%, No. 2 share. Up 345%.
Flippers: 9.5%, No. 1 share. Up 15%.
How bubbly?
On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … THREE BUBBLES!
I’m sure some will see these investor trends as a sign of California’s economic weakness, but I’ll start the new year with one thought about risk: Thankfully, we’re not Phoenix!
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
Source: Orange County Register
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