So you can’t afford a house in Seattle. Are investors to blame?

A Federal Way rambler. A Covington four-bedroom with a “cozy gas fireplace.” A pale blue two-story home in an Auburn subdivision. 

Since the start of the pandemic, these and more than a dozen other King County houses sold just days after being listed. But unlike others in the region’s hot housing market, the homes didn’t go to buyers trying to secure their first place or searching for larger suburban homes to work from home.

The buyer was Invitation Homes, a property management company that rents some 80,000 homes across the country and was created by Wall Street giant Blackstone after the financial crisis (then later sold off by the investment firm). 

Invitation Homes is part of a small but growing share of homebuyers in Seattle: investors ranging from small-time flippers and landlords to large-scale investment firms. 

The share of Seattle-area homes sold to investors has climbed steadily over the past two decades — from about 3% in 2000 to 9% this fall — according to data released by Redfin this week. Other measures vary, depending on how “investor” is defined. Those range from 6% to 29% of all home sales.

It’s not just here. All over the country, Wall Street landlords, pension funds and flippers are looking to cash in on the rapid rise in home prices and rents. That’s putting them in competition with first-time buyers trying to claw their way into the country’s primary source of wealth-building: homeownership.

Nationally, investors bought a record-high 18% of the homes sold in the third quarter of this year, and investors increasingly turned to single-family homes, according to Redfin.

“Investors eager to buy homes are going to push up against people who want to live in them,” said Daryl Fairweather, chief economist at Redfin. 

Still, investors alone can’t explain Seattle’s increasingly out-of-reach housing market. Individual buyers with cash from stocks or the sale of their last home drive bidding wars, sometimes with all-cash offers.  

“We have scarce housing and a lot of people working here making a lot of money,” said Gregg Colburn, a University of Washington assistant professor who has studied the practices of institutional investors and has a forthcoming book on housing and homelessness. “To a certain extent, we’ve created our own problem.”

It’s a common story in the Seattle area’s competitive market: After a grueling search for their first home and multiple failed offers, software developer Johnathan Lyman and his wife found themselves as one of at least 20 parties making offers on a four-bedroom home in Auburn. 

They were among the highest bids, but had to kick in extra earnest money (essentially a nonrefundable deposit to the seller) in order to win. The house was listed for $480,000. In the end, they paid $550,000.

It didn’t take a Wall Street firm to drive that bidding war. “Us individual buyers definitely had no trouble pushing up the price,” Lyman said. 

“Seeing the opportunity”

In the years following the housing crash in 2008, investor purchases soared. Foreclosures drove housing prices down and the number of renters up. A flood of large investors looked to capitalize and more single-family homes became rentals. 

Now, rising home prices are narrowing some profit margins, but investor interest is especially high in Sunbelt cities such as Atlanta, Phoenix and Miami, according to Redfin.

Economists say an array of factors is driving investor interest: Interest rates are low, rising home prices promise a good return on investment and investors may be catching up on purchases they put off last year, said Thomas Malone, an economist at CoreLogic. 

Fast-rising rents and an end to pandemic tenant protections promise more return for investor landlords.

New trends could be playing a small role, too. Algorithm-based flipping known as iBuying is likely behind about 10% of the surge, Malone said. Build-to-rent projects, in which investors build single-family homes specifically to rent, are becoming more common. 

“It’s a chicken-and-egg issue,” Malone said. “Are investors creating the high prices or are they seeing high prices and chasing after them?” 

In the Seattle area, people looking to rehab and resell houses or operate rentals are “seeing the opportunity” because of high price appreciation and easier access to funding, said Jim Melgard, vice president of sales at Eastside Funding, which lends money to investors. He estimates his business is roughly 70% flippers and 30% landlords.

Parsing the share of Seattle buyers looking for investment properties, and how many are house-flippers versus landlords, is complex. That makes it harder to track and understand the implications. King County, for example, records more than 60,000 deeds each year and couldn’t provide a breakdown of the top investors. Large companies may use multiple LLCs.

To estimate the number of investors, Redfin looked for buyers whose name in purchasing documents included one of a handful of keywords, such as “LLC,” “Corp,” “joint venture” and “corporate trust.”

Their data may include some buyers who plan to live in their homes but use a family trust or an LLC to close the deal. LLCs, which conceal the buyer’s identity, are a common tactic for wealthy buyers.

Another measure, by ATTOM Data Solutions, looked just for institutional investors who bought at least 10 properties in a year. Those made up about 6% of single-family home and condo sales in Seattle, Tacoma and Bellevue in the third quarter this year, up from 2% at the same time in 2020.

A broader look finds a far higher share. CoreLogic counts any person or corporation who owned three or more properties at the same time in the last decade as an investor. By that measure, 13% of single-family home sales in the Seattle area last year went to investors. In September: nearly 29%. 

This approach may count an investor’s personal property along with their investments, but is likely to reflect more small-scale investors than the other counts, said Malone, from CoreLogic. 

By Redfin’s measure, some of the areas near Seattle with the most investor interest are also some of the richest: Medina, Bellevue, Mercer Island and Kirkland. ZIP codes in Shoreline and the University District also saw high investor buys.

The concentration on the Eastside, where the median home price is nearly $1.4 million, “speaks to wealth inequality,” Fairweather said. 

Pricey areas are a safe bet because “there are going to continue to be people who want to live in Bellevue and on the water. Those people keep getting richer and they will be able to afford higher rent, will be able to afford higher home prices,” she said.

More affordable areas like Federal Way, Kent, Auburn and Tacoma also draw interest from investors, including those looking to flip, Melgard said. “People have started to expand out to Aberdeen and Centralia,” he said.

Even without investors, prices climb

Meanwhile, individual buyers have looked to new tactics to compete in the competitive market in recent years.

To offer more cash, Seattle-area buyers are tapping into stocks, equity from selling their last home, gifts from family members and, occasionally, cryptocurrency, said Aaron Crossley, a lender with Kirkland-based Caliber Home Loans.

Buyers frequently waive protections, such as their right to an inspection. And after heartbreaking searches, some find themselves offering more and more money to try to win.

“Investors have a bottom line,” said Ann Nordling, owner and managing broker 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 both to buy and to rent, and thousands of workers making low wages commute more than 25 miles to work in Seattle. From 2005 to 2019, Seattle added more than 169,000 new jobs and only about 84,000 new housing units. 

Since 2016, Seattle-area home prices have climbed nearly 70%. Rents in the metro area rose 23% in five years. Meanwhile, Washington has seen one of the biggest increases in homelessness in the country. 

“We need major commitments to housing production that to date we just haven’t made,” said Colburn, from the UW. “We need market-rate, workforce and affordable and supportive housing for people experiencing homelessness. Any one of those in isolation, in my opinion, is not enough.”