Investors make up fifth of market, but not all bidding wars
Rich Kiernan isn’t participating in the miles-high bidding wars this year.
With more than 150 investment properties in Emmaus, Allentown and northern New York in his coffer, the retired UGI accounts representative won’t overpay for a house, as today’s Lehigh Valley housing market necessitates. Instead, he buys them before they go on the market.
“We sit back and wait until we find the right one,” he said, referring to he and his wife, who live in Lower Macungie Township. His strategy?
“I’d rather not say that,” he said. “You can quote that.”
For the last decade, according to data from John Burns Real Estate Consulting in California, about a fifth of homes on the Lehigh Valley market have been bought by investors, who can often bid cash, on or off market.
With the housing inventory so critically low, that percentage becomes more noticeable. But experts say investor buyers are responding to a competitive market and are just one factor driving up the prices and competition. Another prevailing factor is the ever-increasing attractiveness of the Lehigh Valley as a bedroom community for New York and New Jersey buyers, including regular homeowners, who now have more liberty to work from wherever they choose.
“The Lehigh Valley is becoming waterfront property, so to speak,” said Kamran Afshar, director of the Kamran Afshar Data Analytics Center at DeSales University.
Most investors these days are converting those homes into rentals — which worries housing advocates.
On the market, they compete for a dwindling number of homes. In April, the Lehigh Valley had just 668 homes on the market, selling within an average of 20 days, according to the Greater Lehigh Valley Realtors association. Both of those metrics are lower than prerecession levels.
“I’ve been an agent for 15 years,” said Addie Pettus, of One Valley Realty. “To see the feeding frenzy on these houses is beyond me.”
Investors aren’t always the winners. Some of Pettus’ investor clients have been drawn into bidding wars this year by extremely low interest rates. Even they have had to place multiple offers before striking gold. Some are waiting on the sidelines for the market to change.
Plus, investors don’t have the same motivation to win a bidding war that a buyer looking to live there would, said Doug Frederick, broker and owner of the Howard Hanna The Frederick Group.
“They don’t have the emotion,” he said.
Bob Wegner, a marketing rep from Lower Macungie who does investment buying on the side, hasn’t bought any properties this year. He’s only tried a handful of times — last week he put in a full-price offer with no contingencies and didn’t prevail. But he sold four Allentown units to other investors and nearly doubled his money.
To buy an investment property, the numbers still have to make sense, he said.
“If you were a mom-and-pop trying to establish income revenue, it’s a lot harder in this market,” he said. “You’re better off waiting until this thing dies down.”
Data is scant on who makes up the Lehigh Valley’s investor-buyer market.
Neither GLVR nor the Lehigh Valley Economic Development Corp. tracks who residential real estate transactions
are going to. John Burns Real Estate Consulting, in California, calculated its data based on home sale closings where the ZIP code of the property differs from the ZIP of the new owner’s mailing address, but does not break down the data into types of investors and where they come from. According to this data, which includes all types of housing, investor buyers have hovered around 20% of the Lehigh Valley market since about 2011.
Nationally, too, investors buy about a fifth of homes, according to John Burns. The study identified about 200 companies playing a role in the investor market, from crowdfunding platforms to build-to-rent developers to iBuyers, that didn’t exist during the mid-2000s housing boom.
Anecdotally, investors and real estate agents say the Lehigh Valley’s investor market consists of many mom-and-pop landlords like Wegner and Kiernan, both local and out of state. The region does field interest from midsized investor groups, said Frederick, who gets their calls at his office. Reps for these companies patrol hot spot neighborhoods handing out literature and making cold
calls — similarly, many local investors find off-market properties through word of mouth, said Tim Tepes, GLVR president.
Frederick has not yet fielded calls from major publicly traded companies, like Blackrock Capital Investment Corp.
No matter who they are, the investor activity affects the average homebuyer.
“Investors are absolutely contributing to that sense of ... increasing urgency and setting terms that owner-occupants are having to live up to,” Frederick said.
Those buyers include nonprofits like Community Action Committee of the Lehigh Valley, which purchases fixer-uppers in Allentown and Bethlehem to renovate and turn into owner-occupied housing for low-income families. As head of construction and housing rehabilitation, Chuck Weiss has been doing this for more than two decades.
“We can’t even compete anymore,” he said. “Some of it is investor buy-up, some is just competition . ... We’re in the hottest real estate market I’ve ever experienced.”
Investors can gobble up homes quickly with cash, but Weiss has to get board approval for any purchase he wants to make. In the last three years, CACLV bought six homes in south Bethlehem on the market; this year, he said the nonprofit had to pivot to looking at county- or city-owned blighted properties. Many of the small investors he’s talked to are from New York and New Jersey.
These days, most investors turn the homes they buy into rental properties, which concerns Weiss. Homeowners are more likely to be involved in the community and to keep the exterior of the home looking nice, he said.
As of the 2019 American Community Survey, about half of Bethlehem’s housing units are rentals; in Allentown, it’s more than 60%.
Places like these cities, where rowhomes can be bought for $100,000 or less, are where much of the investor activity takes place, agents and investors say, though Frederick has noted an expansion into 1960s and ‘70s-era ranch-style homes. Nationally, in the first quarter of 2021, data from Redfin shows a 5% year-over-year growth in investor purchases of single-family houses, outpacing all other housing types, and a nearly 20% year-over-year growth in investor purchases of highpriced homes.
As undersupplied as the housing market is, the rental market is as intense, if not more, Frederick said. This means investors, responding to the demand, turn a decent profit.
For example, in one of Kiernan’s twin homes, he’s renting for $300 more than last year. He puts rentals on Zillow and gets hundreds of responses from people looking to rent.
“The market’s scary. It’s really scary,” he said. “It’s good scary for me, it’s a bad scary for the renters.”
Rent prices nationally increased 2.3% over the last month, setting a record for month-over-month growth for the third month in a row, according to Apartment List. Rents in Allentown increased 3.5% in the last month, and 17% since this time last year — far outpacing the nation’s 5.3% year-over-year growth.
The median home sale in the Lehigh Valley slowly increased from $175,000 to $200,000 during the four-year period of 2015-19. But over the past year, that median price ballooned by the same $25,000, as the pandemic led residents of New York City and its expensive suburbs to move to the cheaper Lehigh Valley.
A Lehigh Valley Planning Commission report in March flagged the ramifications for low- and middle-income families. A third of Lehigh Valley households are considered “cost-burdened,” meaning they use more than 30% of their income to pay for housing, according to the report.
The market is extra slim for less-competitive buyers using loans backed by government agencies such as Veterans Affairs or the Federal Housing Administration. They have trouble competing with cash-flush investors and conventional-loan buyers. A couple of Pettus’ clients have been priced out.
“In the beginnings of their search, things remained optimistic, but things just slowly fizzled out,” the real estate agent said. “You throw everything you have. But if you only have so much money . ... Shy of giving your firstborn, what can you do?”
Re/Max agent Mike Bernadyn has two VA clients who have each seen about 45 homes and made offers on about half of them. They’ve come close on some, but it comes down to the terms, such as the ability to match the difference between the asking price and the appraisal.
“They may not have the benefit of having $10,000-$20,000 to throw around,” he said.
But signs of waning are on the horizon. Frederick is seeing houses get sold in days rather than hours, and 10 offers on homes rather than 20. On a recent home sale, the winning bid actually wanted a home inspection, “so I can tell the market’s slowing down,” he laughed.
“We’re tried to make jest out of it, because it’s really kind of crazy, the market we’ve been living through,” he said.
Some unusual circumstances have fueled this wave of demand, and experts like Afshar believe things are going to come back down. Wegner, the investor, agrees, and he’ll be ready to participate more when the prices recede.
“When this wave passes through, the waters behind it will be calmer,” Afshar said.