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RE investors drove up home prices. They're gone?

Once interest rates took off, these guys can no longer buy. That's helped reduce the demand for homes at the same time nobody wants to sell. The latter group realizes that they can't replicate their existing 2% mortgage if they unload their home and buy elsewhere.

Real Estate Investors Pull Back, Buying 45% Fewer Homes Than a Year Ago

August 30, 2023

by Dana Anderson Redfin

Updated on August 31st, 2023

The drop in investor purchases outpaced the 31% decline in overall home sales.

  • Investor market share is down to 16% after hitting an all-time high of 20% in the first quarter of 2022.

  • Investors are also making up a smaller share of the home-selling pie, with 8% of new listings owned by investors, down from a peak of 13% at the end of 2021.

  • Investors are gravitating to low-priced homes and single-family homes–though investor purchases of single-family homes declined year over year due to limited inventory.

  • Investor market share and investor purchases retreated most in Phoenix, Las Vegas and other Sun Belt metros, as those places boomed during the pandemic and have a lot of room to fall.

Investor home purchases fell 45% from a year earlier in the second quarter, outpacing the 31% drop in overall home sales. That’s the biggest decline since 2008 with the exception of the quarter before, when they dropped 48%. The decline comes as this year’s relatively cool housing and rental markets makes investing in homes less attractive than it was during the pandemic-driven homebuying frenzy of 2021 and early 2022.

This is according to a Redfin analysis of county records across 39 of the most populous U.S. metropolitan areas. We define an investor as any institution or business that purchases residential real estate. When we refer to a “record,” the record dates back to the first quarter of 2000. This data is subject to revision. A more detailed methodology is at the end of this report.

The drop in purchases has brought the total number of homes bought by investors below pre-pandemic levels. Real estate investors bought roughly 50,000 U.S. homes in the second quarter, the fewest of any second quarter in seven years, with the exception of the start of the pandemic. (This data is seasonal, with investor purchases typically hitting lows in the first quarter then peaking in the second quarter.)

This marks a retreat from a boom in investor activity during the pandemic, which was driven by record-low mortgage rates and huge homebuying and rental demand, creating opportunities for investors to make a lot of money.

“Offers from hedge funds have dried up; I haven’t received an offer from one in a long time, except unrealistically low offers,” said Las Vegas Redfin Premier agent Shay Stein. “From mid-2020 until early 2022 when interest rates started going up, hedge funds bought up a ton of properties and immediately turned them into rentals, pricing out local buyers. Now a big portion of our homes are owned by investors, but they’re not adding to their portfolios.”

In dollar terms, the drop in investor purchases is almost as big. Investors bought a total of $36.4 billion worth of homes in the second quarter, down 42% from a year earlier. That’s still above pre-pandemic levels, but dropping closer to it: Investors bought a total of $34 billion in the second quarter of 2018, and a total of $31.9 billion in the second quarter of 2019. The typical home purchased by investors in the second quarter cost $470,120, comparable with the $467,885 median price a year earlier.

In terms of market share, investors bought 15.6% of homes that were sold in the U.S. during the second quarter, down from 19.7% a year earlier and a record high of 20.4% in the beginning of 2022.

More cowbell:,Real%20Estate%20Investors%20Pull%20Back%2C%20Buying%2045%25%20Fewer,Homes%20Than%20a%20Year%20Ago&text=The%20drop%20in%20investor%20purchases,the%20first%20quarter%20of%202022.

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