Institutional investors, higher material costs lead to rising home prices

Homebuyers may think prices are rising and supply is dwindling because of low interest rates and increasing demand.

But two of the main reasons for the skyrocketing prices are actually a huge buying spree from institutional investors and surging building materials costs, according to Inman.

Rick Palacios Jr., director of research for John Burns Real Estate Consulting, said that investors are buying 20 percent of all homes in the U.S. He points to Phoenix where nearly 30 percent of home sales are to investors.

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Many of these investors are targeting lower-priced homes. According to a report from John Burns Consulting, cash purchases account for 67 percent of homes sold below $100,000, and 31 percent of homes sold between $100,000 and $200,000, Inman reported.

Rising building costs are another culprit for rising home prices.

At the beginning of the pandemic, lumber companies expected a drop in demand and shut down.

Higher costs were then passed along to homebuyers.

In February, the National Association of Home Builders claimed that rising material prices led to an additional $24,000 cost to newly built single-family homes. Concrete, oriented strand boards and other products also saw price jumps.

NAHB reported that the price of steel mill products rose 22 percent in the past three months.

[Inman] — Keith Larsen