According to a new report from Redfin, investor home purchases fell 45% from a year earlier in the second quarter, outpacing the 31% drop in overall home sales. That’s the biggest decline since 2008 with the exception of the quarter before, when they dropped 48%.
The decline in investor purchases comes as this year’s relatively cool housing and rental markets make investing in homes less attractive than it was during the pandemic-driven homebuying frenzy of 2021 and early 2022.
The drop in purchases has brought the total number of homes bought by investors below pre-pandemic levels. Real estate investors bought roughly 50,000 homes in the second quarter, the fewest of any second quarter in seven years, with the exception of the start of the pandemic. The data in this report is from 39 of the most populous U.S. metro areas.
This marks a retreat from a boom in investor activity during the pandemic, which was driven by record-low mortgage rates and huge homebuying and rental demand, creating opportunities for investors to make a lot of money.
Investor purchases declined 65% year over year in Las Vegas, Jacksonville, Fla., and Phoenix, the biggest drops of the metros in this analysis. Investors are pulling back quickly from the Sun Belt and Florida largely because those places had an even bigger boom in homebuying demand than the rest of the country in 2021 and early 2022, and now they’re cooling fast.
In dollar terms, the drop in investor purchases is almost as big. Investors bought a total of $36.4 billion worth of homes in the second quarter, down 42% from a year earlier. That’s still above pre-pandemic levels, but dropping closer to it: Investors bought a total of $34 billion in the second quarter of 2018, and a total of $31.9 billion in the second quarter of 2019.
In terms of market share, investors bought 15.6% of homes that were sold in the U.S. during the second quarter, down from 19.7% a year earlier and a record high of 20.4% in the beginning of 2022.
The outsized drop in purchases by investors helps explain why their market share is coming down: Investors backed off from the housing market faster than individual homebuyers in the second quarter.
Additionally, investors themselves were deterred by high home prices and high interest rates. Roughly 7 of every 10 (71%) investor purchases were made in cash in the second quarter – down from 75% a year earlier – but they’re still impacted by high interest rates because they often use other types of loans to cover expenses.
“Moving forward, the investors who do come back may be more focused on scooping up rental properties than flipping homes,” says Sheharyar Bokhari, Redfin senior economist. “The typical U.S. asking rent remains quite high, just $16 shy of its all-time high, so investors who are landlords stand to earn money.”
“Home flippers may be slower to come back,” Bokhari continues. “That’s mainly because mortgage rates are unlikely to decline significantly in the short term, which will keep homebuying demand relatively low and discourage flippers.”
Even if investors’ market share does pick back up, their purchase volume is likely to remain low. Like other buyers, they’re limited by a severe lack of listings, with homeowners locked in by relatively low mortgage rates.
The full report is available on the Redfin website.
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