Investor purchases of homes rose 3.4 percent year-over-year in the second quarter —the largest increase since the second quarter of 2022. That is according to a new report from Redfin.
Investors purchased 16.8 percent of homes that sold in the second quarter — the highest second-quarter share on record aside from 2022. That’s down from an all-time high of 20.8 percent hit during the pandemic but up from 16 percent a year earlier.
Such activity in the housing market is stabilizing following several years of dramatic ups and downs. Investor home purchases more than doubled during the pandemic homebuying boom in 2021, and then plunged nearly 50 percent last year as declining rents and home values ate into potential profits.
“One reason real estate investors are coming out of hibernation is to take advantage of robust demand from renters,” Redfin Senior Economist Sheharyar Bokhari said in a release. “Elevated home prices and mortgage rates have pushed homeownership out of reach for a lot of Americans, which is fueling demand for rentals. Investors, many of whom can afford to pay in cash to avoid the sting of high mortgage rates, are cashing in on that demand.”
Mortgage rates did drop to the lowest level in over a year last week after a weaker-than-expected jobs report stoked recession fears, which helped homebuyers gain tens of thousands of dollars of purchasing power, Redfin said. Still, homeownership remains out of reach for many Americans.
While renter demand is strong, rents have been sluggish because a lot of new apartments have been hitting the market following a construction boom during the pandemic. That means property owners have been competing for tenants and have had less room to boost prices. But apartment construction is starting to slow, which could cause rents to rebound in the coming years — another factor that may be bringing investors off of the sidelines.
Investor purchases were near a low point in the second quarter of 2023, another reason they’re now rising on a year-over-year basis. They appear to be inching back toward pre-pandemic levels.
Investors have seen their market share inch up because they’ve come off the sidelines faster than individual buyers. While investor home purchases rose 3.4 percent in the second quarter, overall home purchases fell 1.9 percent as elevated mortgage rates and prices deterred buyers. Investors are less sensitive to mortgage rate fluctuations than regular buyers because most of them (69 percent) pay in cash, though they’re still somewhat sensitive because they often take out different loans to cover home flipping and other expenses.