Investor purchases of U.S. homes fell a record 45.8% year over year in the fourth quarter as the high cost of borrowing money and the prospect of substantial home-price declines made real estate investment less attractive. That’s according to a new report from Redfin, a technology-powered real estate brokerage. The second biggest decline occurred in 2008, when investor purchases slumped 45.1% during the subprime mortgage crisis.
Investor purchases slumped 27% on a quarter-over-quarter basis, the largest quarterly decline on record aside from the beginning of the pandemic. That’s comparable with the 28.1% quarterly drop in overall home purchases. While many investors have pumped the brakes on homebuying, investor market share has remained fairly steady. That’s because individual homebuyers have also pulled back. Investors purchased 17.8% of all homes that were bought in the metros tracked by Redfin in the fourth quarter. That’s comparable with 17.6% in the prior quarter and down from 19.4% a year earlier.
In dollar terms, investors bought $31 billion worth of homes in the fourth quarter, down 42.7% from $54.1 billion one year earlier and down 27.5% from $42.8 billion one quarter earlier. The typical home investors purchased cost $425,926, little changed from one year earlier but down 5.8% from one quarter earlier.
Investors piled into the housing market in 2021 due to rock-bottom mortgage rates and surging housing demand and are now retreating amid projections that home prices have room to fall. U.S. home prices are up less than 1% year over year—compared with 15% growth one year ago—and have fallen 11% from their spring 2022 peak. In many metros, prices are already declining on a year-over-year basis. That’s because the jump in mortgage rates last year dampened homebuyer demand. Higher rates also mean it’s more expensive to borrow money, which eats into profits. Many investors are moving their money into other asset classes that offer better returns. For investors who are landlords, slowing rent growth is also making it more challenging to reap large returns.
Investor home purchases in the fourth quarter of 2021 were near their record high, which is another reason the year-over-year decline in 2022 was so dramatic. Investors bought 48,445 homes in the metros tracked by Redfin in the fourth quarter of 2022, down from 89,396 a year earlier and 60,447 in the fourth quarter of 2019—before the pandemic.
Many of the metros where investor purchases declined significantly are places that soared in popularity during the pandemic. Las Vegas, Phoenix and Sacramento consistently rank on Redfin’s list of top migration destinations. Investor purchases may also be declining in Atlanta, Charlotte, Las Vegas and Phoenix because those markets were popular among iBuyer investors, many of whom have ceased or slowed operations in recent months.
