Investor Home Purchases Fell by Almost 50% in Q1

A new Redfin report shows investor home purchases dropped by nearly half (48.6%) in the first quarter of 2023—the steepest dive on record. With elevated interest rates and declining rents eating into investor profits, fewer are willing to take the risk in today’s market. 

Too bad the latest bill to incentivize sellers only applies to primary residences. 

Meanwhile, the annual decline in investor purchases outpaced the 40.7% annual decline in overall home purchases in the 40 major metros analyzed by Redfin. That 48.6% drop is partly due to the near-record high reached in Q1 2022. 

On a quarterly basis, investor purchases dropped 15.9%, comparable with overall home purchases, which fell 14.7% from the previous quarter. 

From full speed ahead to pumping the brakes

Investors went on a home shopping spree during the pandemic, thanks to record-low mortgage rates and insane buyer demand, which all but guaranteed hefty returns. 

Now, with mortgage rates soaring and buyers withdrawing from the market, home values are dropping in many markets, eating into seller profits. 

Even investors who pay in cash are often impacted by high rates, since many take out non-mortgage loans to finance repairs and renovations. 

Heather Kruayai, a Redfin agent in Jacksonville, FL, hasn’t seen one of her listings go to an investor in about eight months. And when she does get an offer from an investor, it’s typically a lowball for a home that’s been sitting on the market for a while. 

With mortgage rates climbing even higher in May, investors may pull back even further from the market in the second quarter—unless we see a significant drop in June. 

Slowing rent growth and diminishing seller profits

Typically, investor home purchases increase in the spring on a quarter-by-quarter basis, but this year, they may decline or fall flat when data for the second quarter comes in. 

Investors who are landlords also have it rough right now with slowing rent growth, partly due to a surplus of rental properties reaching the market. 

Flipping homes has also gotten less profitable as more investor properties sell at a loss due to falling home prices in their markets. About one in seven homes (13.5%) sold by an investor in March had a final sale price lower than the amount the investor originally paid for it. That 13.5% is just under the seven-year high reached in February. 

For home flippers, the share was even higher, with 20.8% of flipped homes selling at a loss. 

Total investor spending in Q1 is down 46.3% YOY

Another reason for the record decline in investor purchases is the near record high for Q1 of the previous year. Investors bought 80,128 homes in Q1 2022—not far from the record high of 95,124 in Q3 2021. 

One year later, in the first quarter of 2023, investor purchases dropped to 41,181 homes. 

Speaking of dollar value, investors spent $27.5 billion overall on home purchases in the metros Redfin analyzed—down 46.3% from $51.2 billion one year ago (Q1 2022) and down 12.4% from $31.4 billion the previous quarter (Q4 2022).

The typical amount investors paid for a home was $427,901—comparable to what they paid in the previous quarter and one year ago. 

Investors purchased 18% of homes sold in Q1 2023

Despite the drop in investor home purchases, investor market share was still relatively high in the first quarter. Investors purchased 17.6% of the homes sold in the metros analyzed by Redfin—down from the 20.4% peak reached a year ago but a higher share than any pre-pandemic quarter on record. 

The likely reason for that increased market share for investors—compared to pre-pandemic levels—is the number of individual homebuyers who’ve been sidelined by high mortgage rates and low inventory. For that share to decline, investors would need to withdraw from the market much more than homebuyers, and, at this point, both groups are holding back. 

Investor home purchases plummeted in the Sun Belt

Investor home purchases took a dive of over 50% in at least 10 of the 40 major metros in Redfin’s analysis. 

Here are the five metros with the biggest annual declines: 

1. Nassau County, NY (-67.9%)
2. Atlanta, GA (-66%)
3. Charlotte, NC (-66%)
4. Phoenix, AZ (-64.2%)
5. Nashville, TN (-60.4%)

Rounding out the top 10 (all with declines of over 50%)—

• 6. Las Vegas, NV
• 7. Jacksonville, FL
• 8. Philadelphia, PA
• 9. Tampa, FL
• 10. Orlando, FL

All but two of those metros are in the Sun Belt, where investors poured in during the pandemic to capitalize on relatively low home prices and rising rents. Now, investors are pulling back as Sun Belt housing markets cool relatively quickly. 

Adding insult to injury, a substantial share of the homes investors purchased in Sun Belt metros sold at a loss in March. 

Top five metros with the largest share of investor properties selling at a loss:

1. Phoenix, AZ (30.7%—more than twice the national rate) 
2. Las Vegas, NV (28%)
3. Jacksonville, FL (20.9%)
4. Sacramento, CA (20.2%)
5. Charlotte, NC (17.4%)

Another reason for the drop in investor purchases in Atlanta, Charlotte, Las Vegas, and Phoenix is the popularity of these metros with iBuyer investors. In recent years, many iBuying companies (including RedfinNow) closed up shop or slowed operations. 

The top five metros with the smallest annual declines in investor purchases in Q1:

1. Baltimore, MD (-8.8%)
2. Providence, RI (-9.6%)
3. Seattle, WA (-15.5%)
4. Milwaukee, WI (-21.6%)
5. Cleveland, OH (-23.2%)

Investor market share drops in Charlotte, Atlanta, and Phoenix

In 17 of the 40 metros in Redfin’s analysis, investors lost market share. And in many of those metros, investors made significantly fewer purchases. 

In Charlotte, investors purchased 18.4% of the homes sold in Q1—down 14.1 percentage points (ppts) from 32.5% one year ago. That’s the steepest percentage-point drop of all the metros tracked by Redfin. 

The top five metros with the biggest drops in investor market share: 

1. Charlotte (-14.1 ppts)
2. Atlanta (-14 ppts)
3. Phoenix (-11.1 ppts)
4. Jacksonville (-10.7 ppts)
5. Nashville (-9.3 ppts)

In some markets, investor market share grew compared to a year ago. Baltimore ranks at the top of these metros, with a 4.6 ppt increase as investors purchased 21.6% of the homes sold in Q1 2023—up from 17% in Q1 2022. 

The top five metros with the largest increases in investor market share: 

1. Baltimore (4.6 ppts)
2. Nassau County (4.3 ppts)
3. New York (4 ppts)
4. Providence (3.4 ppts)
5. Seattle (2.8 ppts)

The top five metros with the highest investor market share in Q1:

1. Miami (30%)
2. Cleveland (24%)
3. Anaheim, CA (22.6%)
4. Detroit (22%)
5. Jacksonville (22%)

The top five metros with the lowest investor market share in Q1:

1. Warren, MI (10.6%)
2. Montgomery County, PA (10.6%)
3. Washington, D.C. (10.6%)
4. Minneapolis (11.1%)
5. Portland, OR (11.5%)

Low-priced homes made up almost half of investor purchases

Almost half (48.7%) of the homes purchased by investors in Q1 were low-priced homes—the largest share in two years. Mid-priced homes accounted for 23.6% of investor home purchases—the smallest share in two years. High-priced homes accounted for 27.7%, which is comparable to the previous several quarters. 

Putting it in terms of market share, investors purchased 24.9% of all low-priced homes sold in Q1 in the metros analyzed by Redfin—close to the 25.3% record high reached one year ago. 

Investors also purchased 12.5% of mid-priced homes (again, the lowest share in two years) and 15.3% of high-priced homes. 

Investors still intent on purchasing properties are gravitating toward more affordable ones, thanks to still-high home prices and soaring interest rates. More than two-fifths (a record 41.5%) of investor purchases in the first quarter were starter homes—homes with, at most, 1,400 square feet—up from 37.2% in Q1 2022. 

Read the full report for more details. 

Takeaways for real estate agents

As a real estate agent, you need to know as much as possible about how to help your buyer clients make the most of the advantages and resources available to them—as well as how to help sellers get the best price for their home. Some might prefer to sell to an individual home buyer than to an investor, even if it means accepting a smaller offer. 

Depending on your average price point, you might mention the new bill going through Congress that could reduce capital gains tax liability for those selling their primary home. If it passes and becomes law, learn all you can about it so you can advise your buyers on whether they qualify, what they can save, and how that can help them when shopping for their next primary home. 

Meanwhile, keep advocating for policies that reduce or eliminate regulation fees for builders and incentive the construction of more affordable homes. Both home buyers and investors will benefit.