Investor home purchases fell 30.2 percent year-over-year nationwide in the third quarter, according to a new report from Redfin.
That is the largest decline since the Great Recession aside from the second quarter of 2020, when investor activity plummeted due to onset of the COVID-19 pandemic. The third quarter drop also outpaced a 27.4 percent drop in overall home purchases nationwide.
“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,” said Redfin senior economist Sheharyar Bokhari in a release. “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.”
Investor purchases slumped 26.1 percent on a quarter-over-quarter basis, the largest quarterly decline on record except for the start of the pandemic. That compares with a 17.4 percent quarterly drop in overall home purchases.
Investors lost market share for the second quarter in a row as they pumped the brakes on purchases. They bought roughly 65,000 homes in the metros tracked by Redfin in the third quarter, or 17.5 percent of all homes that were purchased. That’s down from 19.5 percent in the second quarter and 18.2 percent a year earlier, but still up slightly from roughly 15 percent before the pandemic.
In dollar terms, investors bought $42.4 billion worth of homes in the third quarter, down 26.3 percent from $57.6 billion one year earlier and down 30.5 percent from $61 billion one quarter earlier. The typical home that investors purchased cost $451,975, up 6.4 percent from one year earlier but down 4.3 percent from the second quarter.
Investors purchases plummet in pandemic boomtowns
In Phoenix, investor home purchases slumped 49.4 percent year-over-year in the third quarter, the largest decline among the 40 metros Redfin analyzed. Next came Portland, Ore. (-47.4 percent), Las Vegas (-44.8), Sacramento, Calif. (-43.2) and Atlanta (-42.2). Rounding out the top 10 are Charlotte, N.C., Miami, Denver, San Diego and Riverside, Calif.
Many of the metros where investor purchases declined significantly are places that soared in popularity during the pandemic. Phoenix, Las Vegas, Sacramento, Miami and San Diego consistently rank on Redfin’s list of top migration destinations-.
“The housing markets that investors are backing out of fastest are those that rose rapidly during the pandemic and are now falling rapidly,” Bokhari said. “That volatility creates a lot of uncertainty, which raises the risk of investors losing money.”
Investor home purchases only increased in five of the metros Redfin analyzed. They jumped 46.4 percent year-over-year in Philadelphia, 11.2 percent in New York, 8 percent in Baltimore, 5 percent in Cleveland and less than 1 percent in Newark, N.J.
Baltimore and Newark are among the housing markets holding up best as the overall market slows, along with other relatively affordable places on the East Coast and in the Midwest, Redfin data shows.
Investors lost most market share in Charlotte and Phoenix
Investors lost market share in 14 of the 40 markets Redfin analyzed. Many of those markets are places where investor purchases dropped significantly. In Charlotte, investors bought one-quarter (25.2 percent) of homes purchased in the third quarter, down from about one-third (32.3 percent) a year earlier.
That 7.1-percentage-point drop was the largest decline among the metros in this analysis. Next came Phoenix (25.8 percent vs. 31.9 percent year-over-year; -6.1), Atlanta (27.6 vs. 33.1; -5.5), Portland, Ore. (10.7 vs. 14; -3.3) and Sacramento (16.4 vs. 19.2; -2.8).
Investors gained the most market share in Philadelphia, where they bought 17.2 percent of homes purchased, up from 13.4 percent a year earlier (+3.8 percent). Next came New York (14.9 percent vs. 12.2 percent; +2.7), Nassau County, N.Y. (12.4 vs. 9.8; +2.6), Anaheim, Calif. (21.4 vs. 18.8; +2.6) and Baltimore (14.7 vs. 12.4; +2.3).
Overall, investors had the highest market share in Jacksonville, Fla., where they bought 29.6 percent of homes purchased in the third quarter. It was followed by Miami (28.9 percent), Atlanta (27.6), Las Vegas (26.9) and Orlando, Fla. (26). They had the lowest market share in Montgomery County, Pa. (7.1), Providence, R.I. (7.3), Warren, Mich. (7.7), Washington, D.C. (8.6) and New Brunswick, N.J. (9.7).
While investor market share is highest in Jacksonville, investors bought 31.9 percent fewer properties than they did a year earlier. Many investors are looking to offload properties, according to local Redfin agent Heather Kruayai.
“Almost all of my listings right now are people looking to sell investment properties or second homes,” Kruayai said. “They want to get rid of them now while they still have some value because they’re scared there’s going to be another big crash.”
Investor purchases of single-family homes drop the most
Investor purchases of single-family homes fell 32.3 percent year-over-year in the third quarter, declining more than any other property type. Investor purchases of condos/co-ops decreased 27.5 percent, while purchases of townhouses and multi-family properties both slumped about 18 percent, according to Redfin.
Demand for single-family homes soared during the pandemic as scores of people left condos and apartments in cities for more room in the suburbs, but that demand has eased as the pandemic has subsided and many people have returned to the office and city life.
Still, single-family homes remained the most popular property type among investors in the third quarter, representing nearly three-quarters (72.8 percent) of investor purchases. Condos/co-ops came in second at 16.4 percent, followed by townhouses (6.2 percent) and multi-family properties (4.6 percent).
Investor purchases of mid-priced homes fell 37.1 percent year-over-year in the third quarter, while investor purchases of high-priced homes fell 35.7 percent. By comparison, investor purchases of low-priced homes fell 20 percent.
Demand for high-end goods tends to slow during times of financial stress. Rising interest rates, inflation, a tepid stock market and economic uncertainty have made it less feasible for many people to purchase luxury products, including homes, Redfin assessed.
Low-priced homes made up 43.2 percent of investor home purchases in the third quarter, while mid-priced homes made up 29.7 percent and high-priced homes represented 27.1 percent.
As a result, investors had the highest market share in the low-priced market; buying 23.6 percent of low-priced homes that sold in the third quarter, compared with 15.3 percent of mid-priced homes and 13.9 percent of high–priced homes.