Imagine being outbid for a single family home by a corporation. This was all too real over the past few years, as investors’ real estate purchases surged, fueling the pandemic housing boom and driving many aspiring home buyers out of the market.
Last year, the average 30-year fixed mortgage rate rose to over 7%. The year before, mortgage rates were at historic lows and demand was high, fueling a frenzy of investors in the housing market. The new report from real estate brokerage Redfin shows just how much of a difference there is in investors’ residential property purchases between the two years.
In the fourth quarter of 2022, investor home purchases plunged 45.8% compared to the same period a year earlier, as mortgage rates rose and house prices fell, the Redfin researchers wrote. To add some perspective, the 2008 housing crisis saw a slightly smaller decline, with investor purchases falling 45.1%.
For this report, the researchers analyzed county records in 40 metropolitan areas across the United States, and they defined “investor” as any institution or business that purchases residential real estate.
“Investors crowded into the housing market in 2021 on rock bottom mortgage rates and strong housing demand, and are now retreating amid projections that house prices have room to fall” , says the report.
Pandemic boomtowns like Las Vegas and Phoenix are already seeing strong corrections. In Las Vegas, home purchases by investors fell 67% in the fourth quarter of last year from a year earlier, which Redfin researchers estimated was the biggest drop among the 40 metropolitan areas. which they examined.
Phoenix saw a 66.7% decline over the same period. Meanwhile, Nassau County saw a 63% drop, Atlanta a 62.8% drop, and Charlotte a 61.9% drop. This all made up the top half of the 10 largest declines reported by Redfin. The other half, according to the report, included: Jacksonville (down 57.1% in Q4 2022 from a year earlier), Nashville (-54.8%), Sacramento (-53.5%) , Riverside (-53.0%) and Orlando (-51.8%).
Some of the smallest declines, below 10%, were seen in Milwaukee, New York and Providence. Meanwhile, Baltimore was the only metropolitan city analyzed by Redfin with an increase in home purchases by investors, up 1.4%.
Interestingly, there has also been a shift in what exactly investors are buying. Redfin researchers found that investors’ purchases of single-family homes fell 49.8% year-over-year in the fourth quarter of 2022. The drop is the largest of any other property type. For example, purchases of condos by investors fell 35.6% and purchases of multi-family properties fell 31.1%. But despite being the biggest drop, single-family homes remain the popular choice among investors.
And investors buying homes are tightening their purse strings, with purchases of high-priced and mid-priced homes falling by more than 50%. Meanwhile, purchases of low-cost homes by investors fell 28.6%, according to the report.
However, mortgage rates have come down slightly this year and some markets are seeing a pick-up in activity with the onset of high season, which could pique investor interest.
“Investors may start to come back into the market this year as mortgage rates have come down from their 2022 highs, especially if house prices show signs of bottoming out,” the senior economist said. and Redfin researcher on the report, Sheharyar Bokhari. . “But investors are unlikely to return with the same vigor they had in 2021.”
And that could actually be good news for individual buyers, Bokhari added, as they may no longer lose bidding wars to investors.
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