Imagine being outbid for a single family home by a corporation. That was all too real for the last few years as investor real estate purchases surged, fueling the Pandemic Housing Boom and and pricing many aspiring home buyers out of the market.
Last year the average 30-year fixed mortgage rate rose to over 7%. The year before, mortgage rates were at historic lows and demand was high, which fueled an investor frenzy within the housing market. Real estate brokerage Redfin’s new report shows just how much of a difference there is in investor residential real estate purchases between the two years.
In the fourth quarter of 2022, investor home purchases plunged 45.8% compared to the same period the previous year, as mortgage rates rose and home prices declined, Redfin researchers wrote. To add some perspective, the 2008 housing crisis saw a slightly smaller decline with investor purchases falling 45.1%.
For this report, researchers analyzed county records across 40 metropolitan areas in the U.S., and they define “investor” as any institution or business that purchases residential real estate.
“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 report said.
Pandemic boomtowns like Las Vegas and Phoenix are already seeing sharp corrections. In Las Vegas, investor home purchases fell 67% in the fourth quarter of last year versus a year earlier, which Redfin’s researchers found to be the largest decline among the 40 metro areas they looked at.
Phoenix saw a 66.7% decline in the same period. Meanwhile, Nassau County experienced a 63% drop, Atlanta a 62.8% drop, and Charlotte a 61.9% drop. All of which made up the top half of the 10 largest declines Redfin has reported. The other half, according to the report, included: Jacksonville (down 57.1% in the fourth quarter of 2022 from the previous year), Nashville (-54.8%), Sacramento (-53.5%), Riverside (-53.0%), and Orlando (-51.8%).
Some of the smallest declines, of less than 10%, were seen in Milwaukee, New York, and Providence. Meanwhile, Baltimore was the only metro city Redfin analyzed with an increase in investor home purchases, rising 1.4%.
Interestingly enough, there’s also been a shift in what exactly investors are purchasing. Redfin’s researchers found that investor purchases of single family homes dropped 49.8% year-over-year in the fourth quarter of 2022. The decline is the largest of any other other property type. For instance, investor purchases of condos dropped 35.6% and purchases of multifamily housing properties dropped 31.1%. But despite it being the largest decline, single family homes are still the popular choice among investors.
And investors that are buying homes are tightening their purse strings, with purchases of high-priced and mid-priced homes both declining by more than 50%. Meanwhile, investor purchases of low-priced homes dropped 28.6%, according to the report.
However, mortgage rates have dipped slightly this year and some markets are seeing an uptick in activity with the start of the busy season, so investor interest could be piqued.
“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,” Redfin’s senior economist and researcher on the report, Sheharyar Bokhari, said. “But it’s unlikely that investors will return with the same vigor they had in 2021.”
And that could actually be good news for individual buyers, Bokhari added, in that they may no longer lose bidding wars to investors.
Where are U.S. home prices headed next? Here's the individual forecasts from 29 leading real estate research firms.
Goldman Sachs just made a bold housing market call—here it is
How home prices are expected to shift in over 300 housing markets, according to updated forecasts from Zillow and Moody’s
Learn how to navigate and strengthen trust in your business with The Trust Factor, a weekly newsletter examining what leaders need to succeed. Sign up here.