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Investor Purchases Plateau, But Remain Well Above Pre-Pandemic Levels

Keith Griffin
Aug 18, 2022
Real Estate Investor Pic

In dollar terms, home investing up over 10% year over year.

Real estate investor purchases reached 87,500 U.S. homes in the second quarter, up 11% quarter over quarter and 5.9% year over year, according to a new report from Redfin, the technology-powered real estate brokerage. 

That’s down from the all-time high of 93,700 in the third quarter of 2021, the height of the pandemic-driven home buying frenzy. Still, investors are buying far more homes than they were before the pandemic; they purchased roughly 60,000 homes per quarter in 2019, Redfin said.

Investor market share has also started to level off, but remains above pre-pandemic levels. Investors bought 19.4% of homes that sold in the second quarter, down slightly from a record 20.1% in the first quarter — the first drop after nearly two straight years of increases. It's still up from 16.2% a year earlier and roughly 15% per quarter in 2019.

In dollar terms, investors purchased a record $60.1 billion worth of real estate in the second quarter, up from $50.5 billion in the first quarter and $54.5 billion a year earlier. That’s in line with numbers released Thursday by the National Association of Realtors that showed year-over-year price increases of 10.8%.

“The cooldown in the overall housing market motivates some investors and scares others off,” Redfin Senior Economist Sheharyar Bokhari said in a news release. “Investors are contending with sky-high home prices, just like other buyers. Those who plan to turn homes into rentals are still in the market because high rental payments help offset the cost of the home, and the home will likely grow in value over time.

"Others are motivated by discounts from home builders looking to sell off extra inventory as individual buyers pull back," Bokhari continued. "But investors in the flipping business have quicker turnaround times, so they’re shying away because the prospect of falling home prices means they may lose money when they relist in six months or a year."

Bokhari said investor purchases probably won’t bounce back to 2021 levels, "but they’ll likely remain more common than before the pandemic because the housing market is stable compared with today’s volatile stock market. Those who buy properties as rentals will still cash in, with high demand and vacancies near record lows. But investors will be less of a roadblock for regular buyers as the housing-market slowdown reduces competition. Investors and individual buyers who can afford to purchase homes have a leg up because other prospective buyers have been priced out.”

Purchases plateauing

Purchases of both affordable and expensive homes are plateauing after a pandemic-driven surge. Investors bought roughly 35,000 low-priced homes in the second quarter, down 6% quarter over quarter and 7.6% year over year. But investors are still buying more low-priced homes than before the pandemic; they purchased roughly 30,000 per quarter in 2019.

As reported previously by NMP, tightening inventory in the lowest segment of the housing market has caused it to be the most competitive among retail buyers, based on research by Zillow. Higher prices and interest rates are driving the increased competition.

"Buyers are stretched thin when it comes to affordability, and they are flocking to the lowest-priced homes on the market to get their foot in the door," said Nicole Bachaud, Zillow's senior economist. "Still, the less frenzied market compared to last year will feel like a breath of fresh air for those buyers who haven't been priced out."

The story is similar for mid-priced and high-priced purchases. Investors bought about 28,000 mid-priced homes, up 25.3% from a year earlier and down from the record 31,000 in the third quarter of 2021. But that’s nearly double pre-pandemic levels: Investors purchased about 15,000 mid-priced homes per quarter in 2019. Investors bought about 25,000 high-priced homes, up 8.9% year over year. While that’s down from the record set in the third quarter of 2021, it’s well above about 15,000 per quarter in 2019, before the pandemic.

Inventory rising

At the end of July, inventory in the most expensive third of the housing market was up 11% month over month, and was 19.3% higher than a year earlier. Similarly, inventory in the middle third was up 12.7% month over month and 17.3% annually. Inventory is growing in the lowest-priced third as well, but only 11.2% month over month and 10.4% year over year. During the same period in 2021, inventory in the least expensive tier was growing on a monthly basis at nearly twice the rate of the most expensive homes.

Investors’ market share is at or near record highs for both low- and mid-priced homes. Real estate investors bought 25% of low-priced homes that sold in the second quarter, comparable with the 25.1% record set in the first quarter and up from 21.6% a year earlier. They bought a record 18.8% of mid-priced homes, up from 17.9% in the first quarter and 13.5% a year earlier. Investors bought 15.3% of high-priced homes that sold in the second quarter, down from a record 16.5% at the end of 2021 but up from 13.3% a year earlier.

Purchases of single-family homes, by far the most popular property type with investors, leveled off but remain well above pre-pandemic levels.

Purchases By Type

Broken down by property type, investor purchases of single-family homes, condos, and multi-family properties follow the same trend as the overall investor market: They’re leveling off but remain well above pre-pandemic levels. Investors bought a record number of townhouses.

Investors purchased nearly 65,000 single-family homes in the second quarter, up 8.5% from a year earlier. That’s down from the record-high of about 70,000 set in the third quarter of 2021, but up from about 40,000 per quarter before the pandemic.

Investors bought about 14,000 condos, down 4.3% year over year but up from about 10,000 per quarter before the pandemic. They purchased roughly 3,500 multi-family properties, down 4.1% year over year and up from about 3,000 per quarter before the pandemic. Investors purchased a record 5,300 townhouses, up 10.9% year over year. That compares with about 3,000 townhouse purchases per quarter before the pandemic.

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