Investor home purchases fell 45 percent from a year earlier in the second quarter, outpacing the 31 percent drop in overall home sales, according to a new report from Redfin.
That’s the biggest decline since 2008 with the exception of the quarter before, when they dropped 48 percent. The decline comes as this year’s relatively cool housing and rental markets makes investing in homes less attractive than it was during the pandemic-driven homebuying frenzy of 2021 and early 2022.
The drop in purchases has brought the total number of homes bought by investors below pre-pandemic levels. Real estate investors bought roughly 50,000 homes in the second quarter, the fewest of any second quarter in seven years, with the exception of the start of the pandemic. The data in this report is from 39 of the most populous U.S. metro areas.
This marks a retreat from a boom in investor activity during the pandemic, which was driven by record-low mortgage rates and huge homebuying and rental demand, creating opportunities for investors to make a lot of money.
“Offers from hedge funds have dried up; I haven’t received an offer from one in a long time, except unrealistically low offers,” Las Vegas Redfinagent Shay Stein said in a release. “From mid-2020 until early 2022 when interest rates started going up, hedge funds bought up a ton of properties and immediately turned them into rentals, pricing out local buyers. Now a big portion of our homes are owned by investors, but they’re not adding to their portfolios.”
Investor purchases declined 65 percent year-over-year in Las Vegas, Jacksonville, Fla., and Phoenix, the biggest drops of the metros in the analysis. Investors are pulling back quickly from the Sun Belt and Florida largely because those places had an even bigger boom in homebuying demand than the rest of the country in 2021 and early 2022, and now they’re cooling fast, according to Redfin.
In dollar terms, the drop in investor purchases is almost as big. Investors bought a total of $36.4 billion worth of homes in the second quarter, down 42 percent from a year earlier. That’s still above pre-pandemic levels but dropping closer to it: Investors bought a total of $34 billion in the second quarter of 2018, and a total of $31.9 billion in the second quarter of 2019.
In terms of market share, investors bought 15.6 percent of homes that were sold in the U.S. during the second quarter, down from 19.7 percent a year earlier and a record high of 20.4 percent in the beginning of 2022, according to Redfin.
The outsized drop in purchases by investors helps explain why their market share is coming down: Investors backed off from the housing market faster than individual homebuyers in the second quarter.
Stubbornly high home prices and mortgage rates, limited inventory and widespread economic uncertainty have dampened housing demand and suppressed overall home sales. Those factors are an even bigger deterrent for investors, because they’re in it purely for the potential to make money by flipping homes or renting them out, Redfin said. When housing demand is down, investors are less motivated.
Additionally, investors themselves were deterred by high home prices and high interest rates. Roughly 7 of every 10 (71 percent) investor purchases were made in cash in the second quarter–down from 75 percent a year earlier—but they’re still impacted by high interest rates because they often use other types of loans to cover expenses.
“Moving forward, the investors who do come back may be more focused on scooping up rental properties than flipping homes,” Redfin Senior Economist Sheharyar Bokhari said. “All signs point to the rental market remaining relatively strong. Home prices and mortgage rates are high enough to motivate would-be first-time homebuyers to continue renting. The typical U.S. asking rent remains quite high, just $16 shy of its all-time high, so investors who are landlords stand to earn money. Investor purchases of rental properties could be limited by some of them building new properties to rent out, though.”
“Home flippers may be slower to come back,” Bokhari continued. “That’s mainly because mortgage rates are unlikely to decline significantly in the short term, which will keep homebuying demand relatively low and discourage flippers. Plus, investors have lower-risk places to park their money right now than real estate, with high yields in the bond market.”
Even if investors’ market share does pick back up, their purchase volume is likely to remain low. Like other buyers, they’re limited by a severe lack of listings, with homeowners locked in by relatively low mortgage rates.
Redfin data shows homes owned by investors are making up a smaller share of new listings on the market. Investors owned 8 percent of new listings in March, down slightly from 9 percent a year earlier and down from a peak of 13 percent at the end of 2021. Investors listed 36 percent fewer homes than a year earlier, compared with a 24 percent drop in overall new listings. March is the most recent month for which this data is available.
Most investors who are still flipping homes are making money. The typical home flipper who sold a home in June sold for 61 percent ($188,448) more than their initial purchase price. Though that’s a substantial gain, it’s down from a 69 percent ($199,946) premium a year earlier. “Flipper” refers to an investor who sold a home within nine months of buying it.
Just 3 percent of homes sold by flippers sold at a loss in June, down from a peak of 29 percent in September 2022 and roughly on par with 4 percent a year earlier.
Investors bought 23 percent of low-priced homes that sold in the second quarter, down from 25 percent a year earlier but still much higher than investors’ market share for more expensive homes. They bought 11 percent of mid-priced homes, down from 19 percent a year earlier, and 14 percent of high-priced homes, down from 16 percent a year earlier.
Investors are attracted to low-priced homes for the same reason as other homebuyers: They cost less, which is especially attractive when home prices and interest and mortgage rates remain elevated. Investors who are buying homes to flip and resell are doing so in hopes that they can buy low and sell higher. Small homes—those with 1,400 square feet or less—made up 39.2 percent of investor purchases in the second quarter, the highest share of any second quarter on record and down just slightly from the record high of 40.6 percent in the first quarter of 2023.
In that same vein, low-priced homes make up a substantial piece of investors’ homebuying pie. Low-priced homes made up 46 percent of investor purchases in the second quarter, up from 39 percent a year earlier. High-priced homes made up 31 percent of investor purchases, up from 29 percent a year earlier.
Single-family homes made up 68 percent of investor purchases in the second quarter. That’s down from 73 percent a year earlier, but still the lion’s share of purchases by real estate investors. The decline is partly due to a lack of single-family homes for sale.
Next come condos, which made up 20 percent of investor purchases, up from 16 percent a year earlier and the highest share since 2018. Townhouses made up 7 percent of purchases, followed by multi-family properties, which accounted for 5 percent.
But in terms of market share, investors have the highest when it comes to multi-family properties. Real estate investors purchased 31 percent of multi-family properties that sold in the second quarter, just shy of 32 percent a year earlier. Investors make up a relatively high share of multi-family purchases because those buildings are typically expensive and used as rental properties.
Investors purchased 15 percent of single-family homes, down from 20 percent a year earlier. Investors bought roughly one out of every six condos and townhouses that sold on par with last year, according to Redfin.