Nationwide, investor purchases fell 30% year over year to the lowest third-quarter level in seven years, as rising mortgage rates, high home prices and a lackluster rental market made investing less attractive
(NASDAQ: RDFN) — Investor purchases of U.S. homes dropped 29.7% year over year in the third quarter, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. Investors purchased 48,667 homes—the lowest level of any third quarter since 2016. By comparison, overall home purchases fell 22.2% to 305,219—the lowest third-quarter level since 2012.
The seven metros where investor purchases declined fastest are all in the Sun Belt. Atlanta saw the steepest decline (-49.7%), followed by Charlotte, NC (-49.6%), Jacksonville, FL (-48.2%), Phoenix (-47.4%), Las Vegas (-43.3%), Orlando, FL (-42.6%) and Tampa, FL (-41.3%). This is according to a Redfin analysis of county records across 39 of the most populous U.S. metropolitan areas. The national figures in the report represent an aggregation of those metros.
“Investors are very quiet in Phoenix,” said local Redfin Premier real estate agent Heather Mahmood-Corley. “If I get any investor clients these days, it’s usually the mom-and-pop ones. The bigger investors who used to come in and buy five or 10 homes at a time—you just don’t see that anymore. The money they were getting from hedge funds has dried up, rents are down and demand for housing in general has slowed because so many people are staying put.”
Investors piled into the Sun Belt during the pandemic to profit off of surging housing and rental values as scores of remote workers moved in. Because investor purchases in the region jumped so dramatically, they now have relatively more room to fall. Appetite for homes in many Sun Belt metros has also cooled because so many buyers have been priced out.
Investors Bought $36 Billion Worth of U.S. Homes, Down 20% Year Over Year
Investors purchased $36 billion worth of U.S. homes in the third quarter, down 19.5% from a year earlier. The typical home purchased by investors cost $475,115, up slightly from $449,895 a year earlier, as overall home prices have ticked up.
Home purchases by both investors and individual buyers have plunged from pandemic heights because elevated mortgage rates and home prices have cut into buying power, and house hunters don’t have enough homes to choose from. The typical homebuyer’s monthly payment is now more than $2,700, up roughly 11% from a year ago, as mortgage rates remain elevated. While 71% of investor purchases were made in cash in the third quarter, investors are still impacted by high interest rates because they often use other types of loans to cover expenses.
Investors have retreated faster than regular buyers partly because many of them buy homes purely to make money, which has become harder to do. Home prices are growing, but at a far slower pace than they were during the pandemic homebuying boom, and many sellers are being forced to cut their list prices after putting their homes on the market due to sluggish demand. That’s making it less attractive to be in the business of home flipping. Investors who buy homes to generate rental income are backing off, too, because rents have stopped growing and rental vacancies are on the rise.
“We don't expect investors to dive back into the market in a big way anytime soon,” said Redfin Senior Economist Sheharyar Bokhari. “Borrowing costs are unlikely to fall significantly in the near future, and while home prices may soften a bit, they probably won’t cool enough to bring back a critical mass of investors."
Investors bought 15.9% of U.S. homes that sold in the third quarter, down slightly from 17.6% a year earlier but higher than pre-pandemic levels.
Investors Listed Fewer Homes, But Those Who Did Sell Still Reaped Gains
Investors listed 16.4% fewer homes in September than they did a year earlier. But the typical home sold by an investor went for $179,116 (61.2%) more than they originally bought it for. That’s up from $144,379 (44.6%) a year earlier. September is the most recent month for which this data is available.
Many of the investors who are selling today likely bought before the pandemic home price surge, which is why they’re still able to bring in profits. But it’s important to note that selling a home for more than the purchase price isn’t necessarily the same thing as reaping a large profit. That’s because investors, especially home flippers, spend money remodeling and maintaining homes before selling, which cuts into returns.
Overall, investors owned 8.2% of new listings in September, comparable with 8.8% a year earlier. Just 4.5% of homes sold by investors sold at a loss during the month, down from 13.8% a year earlier.
Mahmood-Corley of Phoenix said she’s seeing more investors sell than buy.
“The investors who bought up all the Airbnbs are selling—some are institutional investors and some are mom-and-pop investors who got in over their heads,” she said. “They’re selling because the Airbnb market isn’t as strong as it was during the pandemic, and in some areas, new rules on short-term rentals have made owning them less attractive. There are also just a lot of unknowns right now, so some people want to get rid of their investment properties so they don’t have to deal with the uncertainty.”
Investors Bought Nearly 1 of Every 4 Low-Priced Homes That Sold
Investors bought 23.5% of low-priced homes that sold in the third quarter, comparable with 23.8% a year earlier. They purchased 13.7% of high-priced homes (little changed from a year earlier) and 11.4% of mid-priced homes (down from 15.6% a year earlier).
Investors are drawn to affordable homes for the same reason as other homebuyers: They cost less, which is especially attractive when home prices and borrowing costs remain elevated. And when housing affordability is this strained, there could be more potential for price increases in the lower price tier.
Low-priced homes made up 45.2% of investor purchases in the third quarter, up from 42.5% a year earlier. High-priced homes accounted for 30.8% (vs 27.6% a year earlier) and mid-priced homes made up 24% (vs 30% a year earlier).
Starter homes, which Redfin defines in this report as homes with 1,400 square feet or less, represented 38.9% of investor purchases in the third quarter, the highest share of any third quarter on record and down just slightly from the all-time high of 40.5% in the first quarter of 2023.
To view the full report, including charts, methodology and metro-level data, please visit:
https://www.redfin.com/news/investor-home-purchases-q3-2023
About Redfin
Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We also run the country's #1 real estate brokerage site. Our home-buying customers see homes first with same day tours, and our lending and title services help them close quickly. Customers selling a home in certain markets can have our renovations crew fix up their home to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Customers who buy and sell with Redfin pay a 1% listing fee, subject to minimums, less than half of what brokerages commonly charge. Since launching in 2006, we've saved customers more than $1.5 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people.
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