Investors Pulling Back

Investors both large and small pulled in their horns in the second quarter, buying their fewest houses in any spring period in five years.

Redfin reports that corporate buyers as well as mom-and-pop investors were responsible for 52,000 sales in the quarter, the fewest for the same three-month period since 2020 and down 6% from a year ago.

The real estate brokerage explains that investors are affected by the same maladies affecting people who intend to reside in the houses they buy — high prices and high mortgage rates — plus one that conventional buyers don’t have to contend with: The rental market isn’t what it used to be.

Asking rents have declined in much of the country, and tightened regulations have put a damper on the short-term sector. “That’s a turn-off for investors who buy properties to rent them out,” according to Redfin.

The report is based on an analysis of national home purchase records across 39 of the most populous metropolitan areas going back through 2000. Redfin defines an investor as any institution or business that purchases residential real estate. But that may not catch investors who tell lenders they intend to occupy the property.

Even though most investors pay in cash, they often take on other loans to fund things like renovations, and interest rates on those loans also are much higher than they were during the pandemic.

Another factor turning off investors: Profits are shrinking. The typical investor earned $195,934 in capital gains when they sold in the second quarter. That’s still up 1.7% year-over-year, but at the start of 2021, profits were up more than 30% year-over-year. Back then, investors snapped up properties and quickly sold them for a big profit during a time of booming demand.

Redfin also notes that not every investor makes money. Indeed, 7% of the houses they sold were sold at a loss during the period. And that’s up from 5% a year ago.

“The numbers just don’t pencil out the way they did a few years ago, whether they’re looking to flip a home or rent it out,” says Redfin Senior Economist Sheharyar Bokhari. “It costs a lot to buy a home, and potential returns are simultaneously softening.”

Still,  investors aren’t disappearing. They’re buying nearly one in five homes sold, but “they’re being choosier about their home purchases, just like individual homebuyers.” Bokhari notes.

Investor purchases of single-family homes and townhouses fell 4%, while purchases of multi-family properties dipped 2%.

Most Affected

Investor pullback is being felt particularly hard in the condominium market, where sales are down 13% from the same period a year ago. That’s the largest decline in nearly two years, and is “at least triple” the decline of any other property type, according to Redfin. 

Condos are flailing for many of the same reasons why conventional buyers are shying away. But besides high loan costs and high prices, many condominiums come with high owner association fees and special assessments for maintenance.

Just as worrisome for investors, slowing rent growth and rising vacancies in certain cities are making their investment strategies less attractive. And if they buy low, as many try to do, they tend to exacerbate declining values.

“The condo market is the slowest I’ve seen in at least a decade,” stated John Tomlinson, a Redfin agent in Fort Lauderdale, Fla., whose state is being hit hardest. “If you’re an investor, you can’t count on making money from a condo right now.”

In Orlando, Fla., investor purchases fell 25% year-over-year in the second quarter, the largest decline among all the 39 metros studied. Elsewhere in the Sunshine State, they dropped 21% in Fort Lauderdale, 16% in Jacksonville, 15% in West Palm Beach, 13% in Tampa, and 12% in Miami.

“Buyers are wary of putting offers on condos because costs have increased so much and they’re nervous that they’ll continue rising in the future,” noted Tomlinson. “HOA fees are high, a lot of insurance companies won’t cover condo buildings on the coast, and some mortgage lenders are quoting higher rates for condos.”

Bright Spots 

Investor sales have not flagged everywhere, though. Some increased — some significantly so. Sales rose the most on the West Coast, led by Seattle, where they were up 51% from Spring 2024, followed by a 24% increase in San Francisco and a 14% boost in Portland, Ore.