BAM’s Key Details:
- A new Redfin report shows investor purchases dropped 30.2% year over year in Q3
- That decline is the biggest since the Great Recession, except for Q2 of 2020
- Investor purchases declined the most in pandemic boomtowns like Phoenix and Las Vegas
A new Redfin report shows a year-over-year drop of 30.2% in investor home purchases in the third quarter—the largest drop since the Great Recession, apart from the start of the pandemic.
Today’s economic uncertainty and the prospect of nationwide declines in home prices have raised the risk of real estate investing, causing some investors to pump the brakes, especially in pandemic boomtowns that are now seeing the biggest declines in home values.
That 30% pullback outpaced the nationwide 27.4% drop in overall home purchases.
Investor purchases plummet, reducing investor market share
On a quarter-over-quarter basis, investor home purchases dropped 26.1%, the steepest quarterly decline on record, apart from the start of the pandemic. It also exceeds the 17.4% quarterly decline in overall home purchases.
Investors lost market share for the second consecutive quarter as they slowed their purchases, buying roughly 65,000 homes in the metros analyzed by Redfin—17.5% of all homes purchased, down from 19.5% in Q2 and 18.2% a year earlier.
In dollar terms, investors purchased $42.4 billion in homes in Q3, down 26.3% from $57.6 billion a year earlier—and down 30.5% from $61 billion in Q2.
The typical home purchased in Q3 by investors cost $451,975—up 6.4% from a year earlier but down 4.3% from Q2.
Real estate investors are pulling back because the prospect of widespread and significant home-price reductions puts them at risk of losing money.
Housing prices nationwide are up just 3% from a year ago—the slowest annual growth since 2020—and in some metros, they’re already lower than a year ago.
Also, thanks to high interest rates, borrowing money is more expensive. This makes investing less appealing since the higher cost eats into profits.
And for investors who also happen to be landlords, the slowdown of rent growth makes it more challenging to turn a profit.
It’s unlikely that investors will return to the market in a big way anytime soon. Home prices would need to fall significantly for that to happen. This means that regular buyers who are still in the market are no longer facing fierce competition from hordes of cash-rich investors like they were last year.
Pandemic boomtowns are feeling it more than most
The five metros with the steepest declines in investor home purchases were:
- Phoenix, AZ: -49.4%
- Portland, OR: -47.4%
- Las Vegas, NV: -44.8%
- Sacramento, CA: -43.2%
- Atlanta: -42.2%
Charlotte, NC, Miami, Denver, San Diego and Riverside, CA, round out the top 10.
Many of the metros seeing the biggest drops in investor purchases are places that exploded in popularity during the pandemic. Metros like Phoenix, Las Vegas, Sacramento, Miami, and San Diego consistently rank highly on Redfin’s list of top migration destinations.
The list is based on net inflow—how many more Redfin.com users are looking to move into a metro than out of it. Areas that were popular during the pandemic are now seeing the biggest drops in home prices, making them less attractive to investors.
The housing markets that investors are backing out of fastest are those that rose rapidly during the pandemic and are now falling rapidly. That volatility creates a lot of uncertainty, which raises the risk of investors losing money.
Investor home purchases increased in only five of the metros in Redfin’s analysis:
- Philadelphia: +46.4%
- New York: +11.2%
- Baltimore: +8%
- Cleveland: +5%
- Newark, NJ: up less than 1%
The housing markets in Baltimore and Newark are among those holding up best, along with other relatively affordable areas in the Midwest and East Coast.
iBuyer investors have slowed operations
Investor purchases may also be falling in Atlanta, Charlotte, Las Vegas, and Phoenix because those markets were favorites among iBuyer investors, some of whom are no longer in the game.
Last year, Zillow announced the shutdown of its iBuying business, and Redfin announced its plans to do the same this month. And not long ago, Opendoor, a leading iBuyer, laid off 18% of its workforce—possibly due to its recent habit of selling homes at a loss.
Investors lose the most market share in Charlotte and Phoenix
Investor market share dropped in 14 of the 40 markets in Redfin’s study. Many of those markets are metros where investor purchases plummeted.
Investors in Charlotte bought 25.2% of the homes purchased in Q3, down from 32.3% a year earlier. That 7.1% drop was the steepest decline among the 40 metros in Redfin’s analysis.
After Charlotte, investor purchases dropped the most in—
- Phoenix: 25.8% vs. 31.9% (-6.1% pts)
- Atlanta: 27.6% vs. 33.1% (-5.5% pts)
- Portland: 10.7% vs. 14% (-3.3% pts)
- Sacramento: 16.4% vs. 19.2% (-2.8 pts)
Investors’ market share grew the most in Philadelphia, where they purchased 17.2% of total homes purchased—up from 13.4% a year ago (+3.8% pts).
After Philadelphia, investors gained the most market share in—
- New York: 14.9% vs. 12.2% (+2.7% pts)
- Nassau County, NY: 12.4% vs. 9.8% (+2.6 pts)
- Anaheim, CA: 21.4% vs. 18.8% (+2.6 pts)
- Baltimore: 14.7% vs. 12.4% (+2.3 pts)
Overall, investor market share was highest in Jacksonville, FL, where they purchased 29.5% of total homes purchased in Q3, followed by—
- Miami: 28.9%
- Atlanta: 27.6%
- Las Vegas: 26.9%
- Orlando, FL: 26%
Investors had the least market share in Montgomery County, PA (7.1%), followed by—
- Providence, RI: 7.3%
- Warren, MI: 7.7%
- Washington, D.C.: 8.6%
- New Brunswick, NJ: 9.7%
While investor market share was highest in Jacksonville, investor purchases dropped 31.9% compared to a year earlier. And according to local Redfin agents, many investors in the area are eager to offload properties.
Single-family homes see the biggest drop in investor purchases
Investor purchases of single-family homes dropped 32.3% year over year in Q3, falling more than any other property type. For context, investor purchases of condos/co-ops dropped 27.5%, while townhomes and multi-family properties dropped about 18%.
During the pandemic, demand for single-family homes spiked as more people left their condos, apartments, and townhomes in cities for places with more room in the suburbs.
Since then, demand for single-family homes has eased. More people are now returning to the office and city life. That said, in Q3, single-family homes were still the most popular property types for investors, representing 72.8% of investor home purchases, followed by—
- Condos/co-ops: 16.4%
- Townhouses: 6.2%
- Multi-family properties: 4.6%
High- & mid-priced homes see bigger drops in investor purchases
Investor purchases of mid-priced homes dropped 37.1% year over year in Q3, while investor purchases of high-priced homes dropped 35.7%.
Investor purchases of low-priced homes, by comparison, dropped 20%.
During financial stress, demand for high-end goods—including homes—tends to decline. And with rising interest rates, inflation, an underwhelming stock market, and economic uncertainty, this would be the time for investors to slow their purchases of luxury goods, including homes.
Lower-priced homes also offer more room to generate profits, making them more attractive to investors, which is probably why they made up 43.2% of investor home purchases in Q3. By comparison, mid-priced homes made up 29.7% and high-priced homes made up 27.1%.
Consequently, investors had the highest market share in the low-priced housing market, buying 23.6% of low-priced homes that sold in Q3, compared with 15.3% of mid-priced homes and 13.9% of high-priced homes.
Top takeaways for real estate agents
Some of your clients may be investors looking to offload properties for fear their value is about to plummet (along with their profits). Help them understand the current market so they can price their properties competitively.
Meanwhile, help your buyer clients make the most of their negotiating power in this market, so they can start reaping the benefits of homeownership.