Investors are backing away from the home purchase market as price appreciation continues to cool.
Investor home purchases declined 45.8% YOY in Q4 2022, according to a new Redfin analysis of 40 U.S. metros. This is a record drop, besting 2008’s 45.1% dip during the subprime mortgage crisis.
Quarter-over-quarter, investment purchases fell 27%, the largest decline excluding the beginning of the pandemic.
Pandemic boomtowns in particular saw massive dips, with investor purchases in Las Vegas and Phoenix dropping by more than 60%.
High borrowing costs and declining home values have “made real estate investing less attractive,” Redfin said.
Home prices have risen less than 1% YOY, down significantly from 15% growth last year. Investors who bought homes at a premium last year may be struggling to make a profit selling them in the current market.
Rent prices are also cooling, meaning landlord investors are seeing less return on investment.
“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,” said 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.”
In metro Atlanta between July 2021 to June 2022, one in three homes was sold to investors.
First-time buyers with inflexible budgets and families hoping to upgrade to more space were up against unknown buyers with deeper pockets.
Investors also helped bring about the reign of all-cash offers during the pandemic housing boom. Almost one-third of all homes sold last year were all cash purchases.
This reflects a worrying trend that homebuyers now are more likely to be white, wealthy, and older than historical averages, while the share of first-time buyers is at a four-decade low.
“Only the wealthy are essentially buying homes,” Lawrence Yun, chief economist at the National Association of Realtors, told the Washington Post. “If this trend was to continue, that means something fundamentally is wrong with society.”
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