As the housing market continues to soften, with mortgage rates easing, price cuts common, and for-sale inventory on the rise, real estate investors are slowly — but surely — returning to their buying ways.
Investor purchases of U.S. homes rose 3.4% year over year in the second quarter — the largest increase since the second quarter of 2022, according to a new report from Redfin. This group of buyers purchased roughly 16.8% of all homes that sold March through June, including roughly one-quarter of all low-priced homes that sold.
The $43 billion worth of homes they bought represents a 13.7% increase annually, and also the largest gain in two years. In San Jose and Las Vegas, investor purchases rose 27% year over year. Investor purchases fell most significantly in Fort Lauderdale (-15.9%) and Providence (-12.4%).
Investor activity was nominal during 2023 after more than doubling during the pandemic homebuying boom as the low costs of financing and double-digit price appreciation incentivized investors to buy. Investor sentiment and purchasing volumes, particularly among small investors, began to tick up in the first quarter of 2024 as signs of market softening emerged.
Purchases of single-family homes are driving the increase in investor activity. Investor purchases of single-family homes rose 6.7% year over year in the second quarter as investor purchases of multifamily properties (two to four units), condos/co-ops, and townhouses fell a respective 5%, 3.3% and 1.9%. Single-family homes represented 69.4% of investor purchases in the second quarter.
Craig Pellegrini, a Redfin Premier real estate agent based in San Jose, reported that about one-quarter of buyers he speaks to are investors. Roughly half are institutional investors and the other half are mom-and-pop investors.
“San Jose has a lot of overseas investors buying sight-unseen, and a lot of home flippers who are purchasing dilapidated homes, putting some lipstick on them, and selling them for a profit,” said Pellegrini. “I’m also seeing parents buy second homes that they plan to rent out for a while and then pass on to their kids, some of whom just graduated college and can’t afford to buy themselves.”
Redfin’s report notes that affordability constraints for non-investor buyers have increased demand for rentals, which has not gone unnoticed by real estate investors. “Investors, many of whom can afford to pay in cash to avoid the sting of high mortgage rates, are cashing in on that demand,” explained Redfin Senior Economist Sheharyar Bokhari.
“There are a lot of folks with tech money who bought homes here in the early 2000s, built a ton of equity, and are now taking on a side hustle as a real estate investor,” Pellegrini continued. “But there are also folks who are renting in neighborhoods like Mountain View and Los Altos, and then buying investment properties in San Jose — which has lower home prices — to build equity.”
Mortgage rates fell last week to the lowest level in more than a year as economic data stoked recession fears and caused 10-year Treasury yields to decline. Redfin's data indicate that investor buyers came off the sidelines more quickly than non-investor buyers in the second quarter; investor purchases rose 3.4% as overall home purchases fell 1.9%.
Low-priced homes represented 45.2% of investor purchases in the second quarter, while high-priced homes comprised 30.9% and mid-priced homes accounted for 23.9%. Nearly one-quarter (24.1%) of low-priced homes that sold in the second quarter were bought by investors, up from 22.7% a year earlier.
Investors claimed the highest share of all home purchases in Miami (28.5%), San Diego (23.7%), Anaheim (23.3%), Las Vegas (22.3%), and Los Angeles (22.2%). They claimed the lowest share in Providence (8.5%), Washington, D.C. (8.7%), Warren, Mich. (9.2%), Montgomery Country, Penn. (9.5%), and Seattle (9.7%).
Meanwhile, the share of investor purchases increased the most in Las Vegas (+4.2%), Los Angeles (+3.3%), Sacramento (+3.2%), Oakland (+2.9%), and Phoenix (+2.8%), while decreasing the most in Miami (-2.3%), Cincinnati (-1.6%), Cleveland (-1%), Seattle (-1%), and Philadelphia (-0.9%).
