As overall home sales fell to the lowest level in more than a decade in the first quarter of 2024, investor buyers comprised the highest share (14.8%) of first-quarter home purchases ever — despite purchasing the lowest quantity of homes since 2020 — after purchases from that buyer segment slumped in 2023 with the broader market.
Investor activity has slowed as interest rates have risen since mid-2022, but that segment of buyers have maintained more momentum than the overall market, leading to greater purchase share despite purchasing fewer homes, new data published by Realtor.com show.
The Realtor.com report coincides with RCN Capital’s release of findings from their quarterly investor sentiment survey, conducted by market intelligence firm, CJ Patrick Company. The results of RCN's Summer 2024 Investor Sentiment Survey show investor sentiment rapidly improving annually and quarterly, suggesting investor activity may increase as home price growth slows, listings rise, and the market softens, favoring buyers.
“Sixty percent of investors viewed today’s market as better or much better than it was a year ago, compared to only 20% who felt it was worse or much worse,” the RCN survey reads. “Investors were equally bullish on where the market is headed, with 61% expecting it to continue to improve, while only 14% expected it to decline.” These represent the highest percentage of positive responses and lowest percentage of negative responses since the survey’s inception, now reporting its fifth quarter of findings.
Within this environment, home flippers are more optimistic than rental property investors. RCN’s survey had 73% of flippers saying the market today is better or much better than a year ago compared to only 35% of rental property investors. Similarly, 75% of flippers expect market conditions to continue to improve, while just 37% of rental property owners feel the same way.
Optimism about the broader economy is 'flipped' between these two segments of investor buyers. A large share of flippers (75%) believe the economy is likely to enter a recession this year, while only 35% of rental property owners do. Both groups expect home prices to continue to rise, with 88% of flippers and 61% of rental property owners anticipating price increases.
Realtor.com’s report indicates that the housing market continues to present a challenge to investor and non-investor buyers alike. “Investors are generally the first to pull out of the market, as seen in 2023, as well as the first to re-enter, which we are seeing signs of now. Though investor activity has not started to ramp back up, the rate of decline has slowed, signifying that investor transactions are nearing their post-pandemic bottom,” the report reads.
Even now, investors are buying more homes and represent a greater share of purchase activity than they did pre-pandemic. Investors purchased 10.6% more homes in the first quarter of 2024 than they did in the first quarter of 2019. The number of investor transactions fell 25.3% from 2022 to 2023, outpacing the 20.4% drop in non-investor home purchases last year.
Though more non-investors are making all-cash purchases, investor cash-purchase activity fell annually in the first quarter as all investors expanded their use of debt financing and as the mix of investor buyers shifted to small and medium investors.
RCN’s survey shows amidst elevated home prices and borrowing costs, homeowners insurance pressures continue to impact investors’ buying and selling activity. Over 84% of the investors surveyed noted that rising insurance costs or the unavailability of insurance coverage was a factor in their decisions to buy and sell real estate. Almost 68% noted that these insurance issues had caused them to miss out on an investment opportunity. Both of these findings were significantly higher than in the prior quarter’s report.
Homeowners insurance pressures are particularly acute in markets severely impacted by extreme weather — 100% of the respondents who invest in California properties cited insurance issues as a consideration in their decision-making. Almost three-quarters (73%) said insurance problems had cost them a deal. In Florida, 83% acknowledged factoring insurance into their investment planning; 67% noted that insurance issues had caused them to miss out on a deal.
Small investors made up 62.6% of investor purchases, per Realtor.com’s report, the highest small investor share since 2001, when their data tracking began. Small investors bought 6.4% more properties on an annual basis, while medium and large investor purchase counts fell 3.8% and 13.9%, respectively. The small investor purchase count was 34.3% higher in the first quarter of 2024 than in the first quarter of 2019, while medium and large investor purchases were down 4.9% and 22.3% in the same period.
The report suggests that investing in property has become more popular for new investors. More buyers may be choosing to invest in affordable markets, like the Midwest, that need more rental inventory to secure a steady stream of rental income.
