Investors are reaping more profits from home buying than they were a year ago, and as a result, they are now buying up the biggest chunk of U.S. homes in almost two years.
Real estate investors bought roughly 44,000 homes in the first quarter of 2024, up 0.5% from a year earlier, according to a new report from Redfin. This marks the first increase since the second quarter of 2022, following several years of dramatic ups and downs in investor purchases.
Investor home purchases more than doubled in 2021, when home values rose by nearly 12% and people renting in cities made a mass exodus for the suburbs. At the start of 2023 investors pulled back on homebuying by nearly 50%, as declining rents and home values ate into potential profits.
Now, more than a year later, investors are easing shaking off the rust and jumping back in the game.
“Investor activity is steady,” said Dallas Redfin+ Premier agent Connie Durnal. “When home prices got crazy high during the pandemic, investors sold out. But several months ago, they started to ramp back up. I’m not seeing a lot of home flippers in our market, but there are a lot of investors looking for single-family homes to rent out, which are in short supply.”
The typical home sold by an investor in March went for 55.2% more than the investor bought it for, up from 46.3% a year earlier. Just 5.3% of homes sold by investors sold for a loss, down from 13.7% in March 2023.
Investors bought 18.7% of U.S. homes that sold in Q1 2024, up from 17.9% a year earlier and the highest percentage in almost two years.
This is in part due to the fact that investors have come off the sidelines faster than individual buyers in this market, as overall U.S. home purchases fell 3.9% in Q1 2024 year-over-year.
Since about 69% of investors pay in cash, they are less sensitive to mortgage rate fluctuation than individual buyers.
In terms of the types of homes they are buying, investor purchases of single family homes rose 3.9% year over year in Q1, the first increase in nearly two years. Their purchases of townhouses, condos/co-ops, and multifamily properties fell 8.6%, 6.4%, and 2.5%, respectively.
“The balance of power between investors and regular buyers is changing,” said Amira Elgoneimy, a Redfin Premier real estate agent in New Jersey. “When there’s a bidding war for a home, it has become more common for the winner to be the person who actually plans to live in the home. Individual buyers are sitting on a lot of cash from the sale of their previous house and pandemic savings, so they’re willing to pay a little more upfront than investors, who have to be mindful of margins.”
The typical home bought by investors in the first quarter cost $464,560, up 9.2% from a year earlier. Investors purchased $31.3 billion worth of homes in the first quarter, up 6.6% year over year.
While high-priced homes made up the biggest increase in investor purchases in the first quarter, low-priced homes represented 47.5% of their purchases, while high-priced homes represented 28.5% and mid-priced homes represented 24%.
“Any home that is entry-level is immediately pounced on,” said Brian Connelly, a Redfin Premier agent in Boston. “There’s a mix of first-time homebuyers, investors, and second-home buyers all fighting for homes.”
Regionally, investor home purchases jumped 27.8% year over year in San Jose, Calif. in Q1 2024. Next came Oakland, Calif. (22%), Minneapolis, Minn. (21.6%), Sacramento, Calif. (20.1%), and San Francisco, Calif. (18.5%).
The metro with the highest share of investor purchases in the same time frame was Miami, where the group bought 30.6% of homes that sold. Next came Cleveland, Ohio (24.6%), Jacksonville, Fla. (24.5%), San Diego, Calif. (23.6%), and San Francisco, Calif. (23.4%).
