Investors are slinking away from the real-estate market as home-price growth slows, and the possibility of price drops appears on the horizon.
The last time investor purchases dropped so significantly was in 2008, during the subprime mortgage crisis. Investor sales dropped 45.1%, Redfin said.
In the fourth quarter of 2021, investors bought 89,396 homes in metro areas tracked by Redfin. In the fourth quarter of 2022, investors only bought 48,445 homes.
The overall drop in mortgage rates and a possible bottoming of home prices may invite investors back into the market, but “it’s unlikely that investors will return with the same vigor they had in 2021,” Sheharyar Bokhari, senior economist at Redfin said.
“That’s good news for individual buyers, who are still grappling with high housing costs but no longer losing bidding war after bidding war to investors,” he added.
During the pandemic, many home buyers were outbid and overshadowed by investors who were able to scoop up homes with all-cash offers. The concern over first-time home buyers losing out prompted Democratic lawmakers to hold a panel to look into possible predatory behavior by institutional investors.
Redfin looked at sales of homes purchased between January 2000 to December 2022.
An investor was identified as a buyer whose name included at least one of these keywords: LLC, Inc, Trust, and Homes. Buyers were also considered to be investors if their ownership code on a purchasing deed includes keywords like “association,” “corporate trustee,” “company,” and so on.
Though investors have “pumped the brakes” on buying homes, it doesn’t mean their market share has dropped, since home buyers have also paused their activity. Mortgage rates have dropped, but since they’re still elevated, and home prices have not yet dropped significantly, people are finding it hard to afford to purchase houses right now.
According to Redfin, investors’ share of the market in all the metros tracked by Redfin was 17.8% in the fourth quarter.
In other words, investors bought that percentage of all homes sold in the 40 most populous U.S. metros tracked by Redfin. Last year, investors bought 19.4% of all homes in the metros tracked by Redfin.
The cost of a typical home an investor purchased was around $425,926.
Investors flee pandemic boomtowns
In pandemic boomtowns, like Las Vegas and Phoenix, investors are running for the hills, as seen by the data.
According to Redfin, investor home purchases fell the most in Las Vegas by 67% year-over-year in the fourth quarter.
Las Vegas is also the metro that saw home values fall the most among the top 50 markets that Zillow
another real-estate tech company, tracked. Home values fell 1.23% in January, compared to December.
Investors also halted the brakes in Phoenix, which saw investor-home purchases drop by 66.7%, Nassau County, N.Y., by 63%, Atlanta by 62.8%, and Charlotte, by 61.9%.
“A lot of investors are on hold because they still see home prices declining,” Elena Fleck, a Palm Beach, Fla.-based real estate agent with Redfin, said.
The only metro among those analyzed that saw an increase in investor purchases was Baltimore, Md., Redfin said.
Investors still had the highest market share in Miami, Jacksonville, Atlanta, Anaheim, and Charlotte, Redfin added.
Mortgage rates in the meantime, have crept back up, as the market weighs further interest-rate hikes from the U.S. Federal Reserve, as it continues to battle with inflation in the economy. Buyers have subsequently pulled back.