Investors are buying fewer homes than they were in recent quarters, according to a new report from Redfin. Investor-led home purchases fell 46% from the fourth quarter of 2021, according to the report — the largest decline in investor-led purchases since 2008, when investor purchases slumped by 45.1%.
That’s also a larger dip than the one that occurred with overall U.S. home purchases, which fell 40.8% year over year in the fourth quarter.
According to Redfin, the drop in investor purchases during Q4 2022 was due, in part, to high borrowing costs, which have made “real estate investing less attractive.” Home price growth has also slowed, with an increase of than 1% year-over-year. By comparison, home price growth was up 15% on an annual basis in Q4 2021.
A slowdown in rent growth has also discouraged landlord investors from purchasing rental homes, making it more challenging to reap large returns, according to Redfin.
“The investors who are in the market are selective and aggressive,” said Elena Fleck, a Redfin real estate agent in Palm Beach. “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.”
The decline is also due to investor home purchases nearing a record high in the fourth quarter of 2021. In turn, the drop from Q4 2021 to Q4 2022 was more dramatic than normal.
When it comes to the types of homes investors are purchasing, the largest decline occurred with single-family homes, which fell a record 49.8% year over year in the fourth quarter of 2022. That was a steeper decline than any other property type.
Investor purchases of condos and co-ops decreased by 35.6% from Q4 2021 to Q4 2022, while townhouse and multi-family property purchases declined by 31.1% year over year.
Investors also pulled back most on the purchase of mid-priced homes, which declined by 58% year over year, according to Redfin. High-priced home purchases by investors fell by 53.2%, a less dramatic tumble, and low-priced home purchases fell just 28.6%.
Pandemic boomtowns see a drop in investor activity
Per the report, pandemic boomtowns like Las Vegas and Phoenix have experienced the largest drops in investor activity.
Investor purchases in Las Vegas fell 67% year over year in the fourth quarter, which was the largest decline in investor activity of the 40 metros analyzed for the report. Phoenix was a close second, with a 66.7% decline in investor purchases from Q4 2021 to Q4 2022.
Other so-called pandemic boomtowns also saw significant declines in investor purchases year over year. Investor purchases dropped by 63% in Nassau County, New York, by 62.8% in Atlanta and 61.9% in Charlotte. In addition, investor purchases in Jacksonville declined by 57.1%, Nashville by 54.8%, Sacramento by 53.5%, Riverside by 53%, and Orlando by 51.8% year over year.
On the other hand, the metro areas with the smallest declines in investor purchases were Milwaukee (7.6%), New York (7.9%), Providence (8.6%) and New Brunswick (10.3%), according to the report.
The only exception to the rule was Baltimore, which was the only metro analyzed that had an increase in investor purchases. Investor-driven purchases in Baltimore rose 1.4% year over year in the fourth quarter of 2022.
Investors also gained the most share of any metro in Baltimore, according to the report. Investors bought 19.4% of homes purchased in Baltimore in Q4 2022, up from 13% a year earlier.
Will investors make a comeback in 2023?
Still, investors might make a comeback this year, according to Sheharyar Bokhari, senior economist at Redfin, considering that there has been a decline in mortgage rates compared to 2022 — but are unlikely to return to the market at the same rate as 2021.
“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 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.””
And, while many investors have pumped the brakes on buying, Redfin said the investor market share has remained “fairly steady,” as homebuyers are also pulling back on purchases.
Per the report, investors purchased 17.8% of all homes tracked by Redfin in the fourth quarter of 2022, which is comparable with 17.6% in the prior quarter. However, that rate is down from 19.4% one year prior.
