BAM Key Details:
- A new Redfin report shows investors bought roughly half as many homes in Q4 2022 compared to Q4 2021, with home purchases down a record 45.8% year-over-year.
- Pandemic boomtowns Las Vegas and Phoenix saw more than a 60% drop in investor home purchases—more than any of the other metros in Redfin’s analysis.
- For context, overall U.S. home purchases in Q4 2022 fell 40.8% year-over-year.
A new Redfin report highlights the drop in investor home purchases in the final quarter of 2022. Put simply, it shows investors buying fewer homes as high mortgage rates and the prospect of home price declines persuaded some to divert their funds to assets with a better ROI.
Investor home purchases fell a record 45.8% year-over-year in Q4 2022.
Declines in pandemic boomtowns were even steeper, with Las Vegas and Phoenix experiencing drops of over 60%, topping all the other metros in Redfin’s analysis.
The second biggest drop dates back to 2008 when investor home purchases fell 45.1% during the subprime mortgage crisis.
For context, overall U.S. home purchases in Q4 2022 fell 40.8% year-over-year.
Q4 investor purchases drop 27% compared to Q3
Investor home purchases in last year’s final quarter dropped 27% compared to Q3—making it the steepest quarterly drop on record, aside from the early days of the pandemic.
That drop is comparable with the 28.1% quarterly decline in overall U.S. home purchases.
While many real estate investors have taken a step back from home buying, investor market share has remained fairly consistent, mainly because individual home buyers have also backed away from the market.
Real estate investors bought 17.8% of all the homes purchased in the metros tracked by Redfin in Q4 2022—which is comparable to the previous quarter’s 17.6% but down from 19.4% in Q4 2021.
Put another way, investors purchased $31 billion in real estate in Q4 2022, down 42.7% from $54.1 billion in Q4 2021 and down 27.5% from $42.8 billion in Q3 2022.
The typical home purchased by real estate investors cost $425,926, down 5.8% from the previous quarter but little changed from the typical home value for Q4 2021.
Investors deterred by prospect of home price declines
For investors in the final quarter of 2022, mortgage rates over 6%, combined with the unsettling prospect of home price declines, dimmed their expectations of real estate’s ROI.
Compare that to 2021, when mortgage rates were around 3% and surging buyer demand made house flipping far more lucrative for investors.
And now, with January’s 0.5% uptick in inflation, the likelihood of another interest rate hike in March has investors, as well as potential home buyers, concerned that mortgage rates will again soar above 7%.
As for home prices, they’re up less than 1% year-over-year and have dropped 11% from their spring 2022 peak. For comparison, home prices in Q4 2021 climbed 15% year-over-year.
In many U.S. metros, home prices are already falling compared to Q4 2021, mainly due to last year’s 3%-jump in mortgage rates, which decimated buyer demand and discouraged sellers with 3% rates locked in. In other markets, however, buyer demand is still high, and prices continue to rise.
Those higher mortgage rates make it more expensive to borrow money, which diminishes profits for would-be investors. Consequently, many are diverting their funds into asset classes that offer a more substantial ROI.
Meanwhile, investors who are landlords are seeing a similar challenge to their ROI from slowing rent growth.
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. 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 Q4 2022, investors purchased 48,445 homes in the markets tracked by Redfin—down from a near-record high of 89,396 in Q4 2021 and 60,447 in Q4 2019, before the pandemic.
Pandemic boomtowns see the biggest declines in investor home purchases
Metros that experienced a population explosion during the pandemic saw the steepest declines in investor home purchases among the 40 metros in Redfin’s analysis.
Some investors seeing home price drops are taking a break from real estate investment purchases, while others have become more selective and aggressive. Many are also offering less than before—around 60% of the list price—to improve their odds of turning a profit.
And while Las Vegas, Phoenix, and Sacramento still rank on Redfin’s list of top migration destinations (based on net inflow), their steeper-than-average home price declines are keeping investors at bay.
Metros w/ largest declines in investor home purchases:
- Las Vegas, NV (67.0%)
- Phoenix, AZ (-66.7%)
- Nassau County, NY (-63.0%)
- Atlanta, GA (-62.8%)
- Charlotte, NC (-61.9%)
- Jacksonville, FL (-57.1%)
- Nashville, TN (-54.8%)
- Sacramento, CA (-53.5%)
- Riverside, CA (-53.0%)
- Orlando, FL (-51.8%)
Another reason why investor purchases have taken a hit in Atlanta, Charlotte, Las Vegas, and Phoenix is because these markets were favorites among iBuyer investors, many of whom have backed off in recent months.
Of all the metros Redfin analyzed, Baltimore was the only one to see an increase in investor purchases, which climbed 1.4% year over year in quarter four.
The following four metros had the smallest declines in investor purchases:
- Milwaukee, WI (-7.6%)
- New York, NY (-7.9%)
- Providence, RI (-8.6%)
- New Brunswick, NJ (-10.3%)
Investor market share gains and losses
Investors lost market share In 15 of the 40 markets in Redfin’s study, many of which are places where investor purchases saw significant drops.
In Atlanta, for example, investors bought just under a quarter (24.6%) of the homes purchased in Q4, down from over a third (36.2%) in Q4 2021.
That’s the biggest percentage-point drop among all the metros in Redfin’s analysis, followed by—
- Charlotte (-11.1 pts)
- Phoenix (-9.3 pts)
- Las Vegas (-7.9 pts)
- Jacksonville (-7.3 pts)
Investors’ market share grew the most in Baltimore, where they purchased 19.4% of homes sold in Q4 2022, up from 13% in Q4 2021 (6.4 points).
Next in line—
- Next came Philadelphia (4.3 pts)
- New York (4.3 pts)
- Nassau County, NY (4.1 pts)
- Milwaukee (4 pts)
Overall, investors enjoyed the highest market share in Miami, where they purchased 30.6% of the homes sold in the fourth quarter, followed by—
- Jacksonville (26.6%)
- Atlanta (24.6%)
- Anaheim, CA (22.6%)
- Charlotte (22.4%)
Investors had the lowest market share in—
- Warren, MI (9%)
- Seattle, WA (9.6%)
- Providence, RI (9.6%)
- Montgomery County, PA (10.5%)
- Minneapolis, MN (10.6%).
Investor Purchases of Single-Family Homes Fall 50%
When it comes to specific types of property investments, single-family homes have lost some of their edge with property investors, whose purchases in this category dropped a record 49.8% year-over-year in Q4 2022—more than any other property type.
Granted, with their most-favored status among property types, there was more room to fall.
Next in severity was the 35.6% decline in investor purchases of condos/co-ops. Purchases of townhomes and multi-family properties both dropped 31.1%.
During the pandemic, buyer demand for single-family homes skyrocketed as remote work allowed scores of people to leave their condos and apartments in cities for more spacious homes in the suburbs and rural areas.
As more people return to the office and to city life, buyer demand for single-family homes has cooled. Still, this property type remains the most popular among investors, accounting for 69.6% of their purchases in Q4 2022.
Condos/co-ops take second place at 17.7%, followed by townhomes (7.3%) and multi-family properties (5.3%).
Investor purchases of high-end properties vs. affordable ones
Here’s a quick snapshot of how investor purchases have declined in Q4 at different price points:
- Mid-priced home investments: -58% year over year
- High-priced homes: -53.2%
- Low-priced homes: -28.6%
Demand for high-end goods tends to taper off during economic downturns as consumers cut back on unnecessary spending.
The majority of investors generally gravitate toward lower-priced homes, which are more likely to yield a tidy profit, especially with a bit of sweat equity and some well-chosen updates to level up the key selling points.
Low-priced homes made up nearly half (48.2%) of investor home purchases in Q4 2022, while mid-priced and high-priced homes both accounted for roughly 26% (each).
Real estate investors also had the highest market share in the low-priced housing market, buying 24.1% of the low-priced homes that sold in Q4 2022, compared with 15% of high-priced and 13.8% of mid-priced homes.
Starter homes—or homes with 1,400 or fewer square feet—accounted for a record 39.5% of investor purchases in the fourth quarter.
Top takeaways for real estate agents
Redfin reports on investor purchases belong in your market research folder, especially if you have any intention of helping real estate investors in your area to grow their portfolios with properties they can afford to improve before they try selling them.
Like any home buyer, investors benefit from working with agents who take the time to understand each client’s needs before suggesting specific properties—and explaining why.
Be the kind of agent investors in your area can trust to guide them in a confusing market.