Investor premiums are pricing out first-time homebuyers

Coupled with high mortgage rates and record-high home prices, real estate investors are also making it harder for first-time buyers to compete, according to new data from real estate analytics firm Cotality.

Insights authored Oct. 10 by Thom Malone, Cotality’s principal economist, found that investors routinely pay more than market value for homes. These premiums range from 1.8% to 4.2%, depending on portfolio size.

On a median-priced home of $405,000, that equates to an extra $7,300 to $17,415. These overbids often include all-cash transactions, waived contingencies and faster closings.

“There are several reasons an investor might pay more than market value,” Malone wrote. “It can be a tactic to quickly close on a home, or it could be a speculative bet that the seller has underpriced a property. It could also simply be a lack of local knowledge.”

Despite higher borrowing costs, investor activity has more than doubled since mid-2020. By early 2025, investors accounted for about one-third of all U.S. home purchases, the company found.

Experts from Cotality expect investor activity to hold steady through the end of 2025, even as investors continue to pay premiums on top of already elevated home prices.

Smaller investors with fewer than 10 properties typically pay about 1.8% above market value, while large investors owning more than 1,000 homes pay 4.2% more on average. Malone said overpayments can be offset by long-term price appreciation or higher rents, particularly for smaller landlords.

Rents have risen 2.3% year over year, according to Cotality, as more potential buyers remain renters. But rent growth has slowed and is below pre-pandemic averages. Over the past five years, rents for lower-cost homes increased by roughly 30% while home prices jumped 50%.

While that gap has lessened profits for many investors, smaller investors remain resilient. They make up about 14% of all investors and are buying the largest share of investment properties in the top 20 U.S. metro areas.

In Los Angeles, where investor activity is high, rents rose 3.1% between July 2024 and July 2025, helping small landlords recover costs.

First-time buyers are facing the most pressure. Malone wrote that investors accounted for 37% of purchases of lower-priced homes this year. Over the past five years, the investor share of housing has doubled and the average age of a first-time buyer has increased to 38, up from 33 in 2020. As a result, many would-be buyers are staying put as renters.