According to a new Redfin report, real estate investor purchases are plateauing after record numbers in the third quarter of 2021. As with homebuyers, some investors are backing off while others are taking advantage of the drop in competition.
The net effect is a reflection of the overall market, but with some good news for homebuyers.
Investor purchases below 2021 record highs
Investor purchases in the second quarter of 2022 reached 87,500 homes—11% more than the previous quarter and 5.9% more than the same time last year.
That number is down compared to purchases in the third quarter of 2021 (93,700) when the pandemic-driven buying frenzy reached its peak, but it’s still well above pre-pandemic numbers.
In 2019, investors purchased about 60,000 homes per quarter.
Some investors are motivated, others scared off
Redfin Senior Economist Sheharyar Bokhari highlighted some of the factors behind investor behavior:
Those who plan to turn homes into rentals are still in the market because high rental payments help offset the cost of the home, and the home will likely grow in value over time. Others are motivated by discounts from home builders looking to sell off extra inventory as individual buyers pull back. But investors in the flipping business have quicker turnaround times, so they’re shying away because the prospect of falling home prices means they may lose money when they relist in six months or a year.
Real estate a better investment than stocks
Bokhari doesn’t see investor purchases bouncing back to 2021 numbers. Still, they’ll probably remain above those from before the pandemic because the housing market is fairly stable compared to today’s volatile stock market.
Investors who buy properties as rentals will still make a profit, thanks to high renter demand and vacancies near record lows.
That said, with fewer investors in the market, regular buyers will face less competition.
Ultimately, investors and regular buyers who can still afford to purchase homes have an advantage since many buyers have been priced out.
Purchases of low- and high-cost homes plateauing
After the pandemic-driven surge of 2021, purchases of both low- and high-priced homes are plateauing. Investor market share is at or near record highs for both, and single-family homes are, by far, the most popular property type.
Purchases have leveled off but remain well above pre-pandemic numbers. Investors purchased almost 65,000 single-family homes—up 8.5% year over year.
That number is down from the record high (about 70K) set in the third quarter of 2021 but well over the 40,000 per quarter from before the pandemic.
On a related note, investors bought a record 5,300 townhomes this quarter—up 10.9% year-over-year—compared to about 3,000 per quarter before the pandemic.
Top 5 Metros for Investor purchases
Investor purchases in Jacksonville, Florida, were up more than 40% year-over-year. Investors bought 31.9% of the homes sold there in the second quarter—the highest market share for investors of all the metros in Redfin’s analysis.
Atlanta’s share comes the closest at 31.8%, followed by Las Vegas (31.5%), Phoenix (31.2%) and Miami (29%).
In all five of these metros, investor purchases were up from a year ago and from the previous quarter. Jacksonville saw an increase of 40.7% year over year, followed by Atlanta (28.2%), Las Vegas (13.9%), Miami (9.3%), and Phoenix (2.3%).
At the low end of that spectrum, Providence, RI, was the least popular metro for real estate investors, who took up 7.3% market share. Washington D.C. was next at 8.1%, then Montgomery County, PA (8.3%), Seattle, WA (8.7%), and Warren, MI (9.5%).
Top takeaways for real estate agents
Some agents have noticed investors waiting for listings to go stagnant before making an offer, which increases their chances of getting the property at a lower price point.
Some sellers are rejecting investor offers because they’re below asking price and often come with long inspection periods. They don’t want to risk missing out on better offers only to see investors back out during the inspection.