Investor activity keeps slowing down from pandemic-era highs

Phoenix, Las Vegas and other Sunbelt metro areas saw the biggest slowdowns in investor activity as high rates and low demand cooled activity nationwide, according to reports.

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Real estate investors continue to slow down their activity in the U.S. as the high cost of homes and financing send investor activity closer to historical levels, according to data two firms shared this week.

Despite reliably high rent prices, lower buyer demand is also weighing on investors, who bought 45 percent fewer homes in the second quarter than a year ago, Redfin reported Wednesday.

Investor activity typically peaks in the second quarter. Not this time. The total number of homes bought by investors was the lowest of any second quarter in seven years except for the onset of the pandemic, Redfin reported.

The slowdown continues to outpace the 31 percent decline in overall home sales, but there are signs that investors remain active, just not as active as they were when interest rates were near record lows during the pandemic. It was the second-biggest slowdown since 2008, slightly behind the first quarter of this year.

The investor market share is still at 16 percent. That’s down from a record high of 20 percent in early 2022, but it’s still above pre-pandemic levels. And investors are still targeting lower-priced homes that are competitive among first-time homebuyers.

Investors picked up nearly one out of every low-priced, single-family home sold in the quarter, Redfin reported, with a particular eye on holding them as rentals.

“Moving forward, the investors who do come back may be more focused on scooping up rental properties than flipping homes,” said Redfin senior economist Sheharyar Bokhari. “All signs point to the rental market remaining relatively strong.”

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Investor purchases were much lower in the second quarter of 2023 than a year earlier. Graph by John Burns Real Estate Consulting

John Burns Real Estate Consulting confirmed that its data shows investor activity peaked in the first quarter of 2022 and has fallen since.

The dropoff among larger, institutional investors has been particularly sharp, according to Joshua Kirby, business intelligence analyst at John Burns.

“Investment from institutions with 1000+ properties has slowed down more significantly than the smaller categories, but they’re all down from that peak,” Kirby said via email. 

John Burns data show the companies that own more than 1,000 homes bought about 21,000 fewer homes in the second quarter than the same time last year. IBuyer activity also has remained slow, with the companies picking up 80 percent fewer homes this year than last, according to the John Burns data.

That lines up with the on-the-ground observations that Redfin Premier agent Shay Stein, who works in Las Vegas, shared in the Redfin report.

“Offers from hedge funds have dried up; I haven’t received an offer from one in a long time, except unrealistically low offers,” Stein said. “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.”

Redfin analyzes 39 of the most populous metro areas in the U.S., looking at homes that were bought and sold by businesses and trusts.

The typical purchase price for investors was $470,120, and more than 7 out of 10 of those purchases are made in cash, Redfin said. Still, those cash offers are often backed by short-term loans that are subject to higher interest rates.

Phoenix, Las Vegas and other Sunbelt metro areas saw the biggest slowdowns in investor activity. 

“Home flippers may be slower to come back,” Bokhari said. “That’s mainly because mortgage rates are unlikely to decline significantly in the short term, which will keep homebuying demand relatively low and discourage flippers.

“Plus, investors have lower-risk places to park their money right now than real estate, with high yields in the bond market.” 

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