Redfin’s new report shows that investors are purchasing fewer homes than in recent quarters. According to the report, the fourth quarter 2021 saw a 46% drop in home purchases by investors. This is the largest decline in investor-led home purchases since 2008, when investment purchases plummeted by 45.1%.
This is also a bigger drop than the one that occurred in U.S. overall home purchases, which fell 40% year-over-year in the fourth quarter.
Redfin claims that the drop in investor purchases in Q4 2022 was due to high borrowing costs. This has made “real estate investing less appealing.” The slowdown in home price growth of more than 1% per year also contributed to the drop in investor purchases. In comparison, Q4 2021 saw a 15% increase in home price growth.
Redfin says that landlord investors have been discouraged from purchasing rental properties due to a slowdown in rent growth. This has made it harder to reap large returns.
Redfin agent Elena Fleck in Palm Beach stated that “the investors who are in this market are selectively and aggressive.” “Many are only offering 60% of the asking price because it’s so hard to make a profit flipping homes right now.
This is due to record-breaking investor home purchases in the fourth quarter 2021. The drop in Q4 2021 and Q4 2022 was also more dramatic than usual.
The largest drop in the number of homes that investors are buying is single-family homes. This fell a record 49.8% over the fourth quarter 2022. This was a much steeper drop than any other type of property.
The number of condos and co-ops purchased by investors decreased by 35.6% between Q4 2021 and Q4 2022. However, the number of multi-family and townhouse property purchases fell by 31.1% annually.
Redfin also reported that investors cut back on mid-priced home purchases, which fell by 58% year-over-year. Investors have stopped buying high-priced homes by 53.2%. Low-priced homes were purchased by 28.6%.
Pandemic boomtowns experience a drop in investor activity
According to the report, the biggest drops in investor activity have been seen in pandemic boomtowns such as Phoenix and Las Vegas.
Investor purchases in Las Vegas decreased 67% year-over-year in the fourth quarter. This was the largest decrease in investor activity among the 40 metros that were analyzed for this report. Phoenix came in second with a 66.7% decrease in investor purchases between Q4 2021 and Q4 2022.
Investor purchases in other so-called pandemic boomtowns saw significant declines year over year. Investor purchases fell by 63% in Nassau County in New York, and by 62.8% at Atlanta and 61.9% at Charlotte. Investor purchases in Jacksonville fell by 57.1%, Nashville dropped by 54.8%, Sacramento dropped by 53.5% and Riverside dropped by 53%. Orlando also fell by 51.8% year-over-year.
According to the report, the metro areas that saw the lowest declines in investor purchases were Milwaukee (7.6%), New York (7.9%), Providence (8.5%) and New Brunswick (10.3%).
Baltimore was the only metro that saw an increase in investor purchases. In the fourth quarter 2022, Baltimore saw an increase of 1.4% in investor-driven purchases.
According to the report, investors also accounted for the largest share of all metros in Baltimore. In Q4 2022 investors bought 19.4% of Baltimore’s homes, compared to 13% a year ago.
Will investors make a comeback by 2023?
According to Sheharyar Bukhari, senior economist at Redfin and senior economist at Redfin — although there has been a decline of mortgage rates compared with 2022 — investors may make a comeback in this year’s market, but it is unlikely that they will return at the same pace as 2021.
Bokhari said that it is possible that investors will re-enter the market this year, given that mortgage rates are now lower than their 2022 high. This is especially true if home prices start to bottom. “But it is unlikely that investors will return to the market with the same enthusiasm they had in 2021.” This is good news for individual buyers who still struggle with high housing costs, but are not losing bidding war after bidding battle to investors.”
Redfin stated that while many investors have put the brakes on buying, the investor market share has remained steady, as homebuyers are also reducing their purchases.
According to the report, 17.8% of all homes monitored by Redfin were purchased by investors in the fourth quarter 2022. This is comparable to 17.6% in previous quarters. This rate is lower than the 19.4% recorded a year ago.