Investors are slinking away from the real-estate market as home-price growth slows and the possibility of price drops appears on the horizon.
Purchases of homes by investors in the U.S. fell by 45.8% year over year in the fourth quarter, according to a new report from real-estate tech company Redfin Corp. RDFN,
The last time investor purchases dropped so significantly was in 2008, during the subprime mortgage crisis, when they fell 45.1%, Redfin said.
In the fourth quarter of 2021, investors bought 89,396 homes in metropolitan areas tracked by Redfin. In the fourth quarter of 2022, investors only bought 48,445 homes in those areas.
The overall drop in mortgage rates and a possible bottoming-out of home prices may lure investors back into the market, but “it’s unlikely that investors will return with the same vigor they had in 2021,” said Sheharyar Bokhari, senior economist at Redfin.
“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,” he added.
During the pandemic, many home buyers were outbid and overshadowed by investors who were able to scoop up homes with all-cash offers. The concern over the plight of first-time home buyers prompted Democratic lawmakers to convene a panel to look into possible predatory behavior by institutional investors.
In its survey, Redfin looked at home sales between January 2000 and December 2022.
For the survey, an investor was defined as a buyer whose name included at least one of these keywords: LLC, Inc., Trust or Homes. Buyers were also considered to be investors if their ownership code on a property deed included keywords like “association,” “corporate trustee” or “company.”
Though investors have pulled back on buying homes, it doesn’t mean their market share has dropped, since individual home buyers have also slowed their activity. Mortgage rates are still elevated and home prices have not yet dropped significantly, meaning that many people are finding it hard to afford to buy a home right now.
According to Redfin, investors’ share of the market in all the metropolitan areas tracked by Redfin was 17.8% in the fourth quarter.
In other words, investors bought that percentage of all homes sold in the 40 most populous U.S. metro areas, as tracked by Redfin. Last year, investors bought 19.4% of all homes in those areas.
The cost of a typical home purchased by an investor was around $425,926.
In pandemic boomtowns like Las Vegas, Nev., and Phoenix, Ariz., investors are running for the hills, the data show.
According to Redfin, home purchases by investors fell the most in Las Vegas, dropping 67% in the fourth quarter over the same period of the previous year.
Las Vegas is also the city that saw home values fall the most among the top 50 markets tracked by Zillow Group Z,
Investors also hit the brakes in Phoenix, where home purchases by investors dropped 66.7%; in Nassau County, N.Y., where they fell 63%; Atlanta, where they fell 62.8%; and Charlotte, N.C., where they dropped 61.9%.
“A lot of investors are on hold because they still see home prices declining,” said Elena Fleck, a Redfin agent based in Palm Beach, Fla.
The only metro area among those analyzed by Redfin that saw an increase in investor purchases was Baltimore, Md.
Investors still had the highest market share in Miami; Jacksonville, Fla.; Atlanta; Anaheim, Calif.; and Charlotte, Redfin noted.
Mortgage rates have crept back up as the market weighs additional interest-rate hikes from the U.S. Federal Reserve, which continues its battle against inflation. In consequence, buyers have also pulled back.
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Aarthi Swaminathan is a MarketWatch personal finance reporter.
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