Investor purchases cooled last year as the high cost of borrowing money and home-price appreciation soared.
Year-over-year investor purchases fell 45.8%, according to a new report from Redfin. It was the second biggest decline since 2008, when investor purchases slumped 45.1%.
While many investors have pumped the brakes on homebuying, investor market share has remained fairly steady. That’s because individual homebuyers have also pulled back. Investors purchased 17.8% of all homes that were bought in the metros tracked by Redfin in the fourth quarter, comparable to 17.6% in the prior quarter but down from 19.4% a year earlier.
In dollar terms, investors bought $31 billion worth of homes in the fourth quarter, down 42.7% from $54.1 billion a year earlier and down 27.5% from $42.8 billion in the previous quarter. The typical home investor's purchase cost $425,926, little changed from a year earlier but down 5.8% from the previous quarter.
“It’s possible that investors will start to wade back into the market this year given that mortgage rates have ticked down from their 2022 high — especially if home prices show signs of bottoming,” said Redfin Senior Economist Sheharyar Bokhari. “But it’s unlikely that investors will return with the same vigor they had in 2021. 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.”
Investors piled into the housing market in 2021 due to rock-bottom mortgage rates and surging housing demand, and are now retreating amid projections that home prices have room to fall.
The pandemic boom towns saw the biggest drop in investor purchases.
In Las Vegas, investor home purchases fell 67% year over year in the fourth quarter, the largest decline among the 40 metros Redfin analyzed. Next came Phoenix (-66.7%), Nassau County, N.Y. (-63%), Atlanta (-62.8%), and Charlotte, N.C. (-61.9%). Rounding out the top 10 are Jacksonville, Fla.; Nashville, Tenn.; Sacramento, Calif.; Riverside, Calif.; and Orlando, Fla.
“A lot of investors are on hold because they still see home prices declining,” said Elena Fleck, a Redfin real estate agent in Palm Beach, Fla. “The investors who are in the market are selective and aggressive. Many of them are only offering around 60% of the asking price since it’s so difficult to make a profit when flipping homes right now.”
Investor purchases may also be declining in Atlanta, Charlotte, Las Vegas, and Phoenix because those markets were popular among iBuyer investors, many of whom have ceased or slowed operations in recent months.
Baltimore was the only metro Redfin analyzed that saw an increase in investor purchases, which rose 1.4% year over year in the fourth quarter. The smallest declines were in Milwaukee (-7.6%), New York (-7.9%), Providence, R.I. (-8.6%), and New Brunswick, N.J. (-10.3%).
Investors lost market share in 15 of the 40 markets Redfin found. In Atlanta, investors bought one-quarter (24.6%) of homes purchased in the fourth quarter, down from more than one-third (36.2%) a year earlier. Next came Charlotte (-11.1 pts), Phoenix (-9.3 pts), Las Vegas (-7.9 pts), and Jacksonville (-7.3 pts).
Investors gained the most market share in Baltimore, where they bought 19.4% of homes purchased, up from 13% a year earlier (6.4 pts). Next came Philadelphia (4.3 pts), New York (4.3 pts), Nassau County, N.Y. (4.1 pts), and Milwaukee (4 pts).
Overall, investors had the highest market share in Miami, where they bought 30.6% of homes purchased in the fourth quarter. It was followed by Jacksonville (26.6%); Atlanta (24.6%); Anaheim, Calif. (22.6%); and Charlotte (22.4%). They had the lowest market share in Warren, Mich. (9%); Seattle (9.6%); Providence (9.6%); Montgomery County, Pa. (10.5%); and Minneapolis (10.6%).
There’s good news for some first-time home buyers though.
Investor purchases of single-family homes fell a record 49.8% year over year in the fourth quarter, more than any other property type.
Demand for single-family homes surged during the pandemic as scores of people left condos and apartments in cities for more room in the suburbs, but that demand has eased as the pandemic has subsided and many people have returned to the office and city life.
Still, single-family homes remain the most popular property type among investors, representing 69.6% of investor purchases in the fourth quarter. Condos/co-ops was second, at 17.7%, followed by townhouses (7.3%) and multi-family properties (5.3%).
Investor purchases of mid-priced homes declined 58% year over year in the fourth quarter and investor purchases of high-priced homes fell 53.2%. By comparison, investor purchases of low-priced homes fell 28.6%.
A record 39.5% of investor purchases in the fourth quarter were starter homes, or homes with 1,400 or fewer square feet.
