Real-estate investors are purchasing fewer homes as high interest rates and potential market value declines dissuade investors.
Key Details
- During the fourth quarter, investor purchases fell 45.8%, according to real-estate brokerage Redfin. A similar decline occurred in 2008 when investor purchases fell 45.1%.
- Home purchases are declining. In the fourth quarter, they fell 40.8% compared to a year ago.
- Despite declining investor interest, investors’ market share has remained steady as individual homebuyers have pulled back to the same degree.
- Investor purchases made up 17.8% of all home purchases—or $31 billion worth of homes—during the fourth quarter.
- Investor interest fell the most in pandemic boom towns, where housing market activity has declined the most.
Why it’s news
Investors are hesitant to put too much of their capital into real estate right now as many anticipate that home values could decline in the coming year.
When mortgage rates were low in 2021, investors swooped in to take advantage of the market. At the time, home prices soared. However, while home prices remain higher than in previous years, they aren’t growing at the same rate as in 2021.
One year ago, home prices grew by 15%. This year, they are up by less than 1% and have declined 11% from peak prices in 2022, Redfin reports.
Higher mortgage rates mean that investors will see decreased profit from their investment leading to investors moving on to other opportunities outside of real estate. Landlord investors are also starting to experience reduced investment returns as rental prices slow.
“It’s possible that investors will start to wade back into the market this year given that mortgage rates have ticked down from their 2022 high—especially if home prices show signs of bottoming,” says Redfin Senior Economist Sheharyar Bokhari.
“But it’s unlikely that investors will return with the same vigor they had in 2021. That’s good news for individual buyers, who are still grappling with high housing costs but no longer losing bidding war after bidding war to investors.”
Investor purchases are declining at a greater rate among high-end and mid-priced homes rather than lower-priced, affordable homes. Purchases of mid-priced homes among investors fell 58%, and high-priced homes dropped 53.2%. Lower-priced homes declined only 28.6%.
