Investors are pumping the brakes—especially in pandemic boomtowns including Phoenix and Las Vegas—as economic uncertainty and the prospect of falling home prices raise the risk of real estate investing
SEATTLE–(BUSINESS WIRE)–#housingmarket–(NASDAQ: RDFN) —Investor home purchases fell 30.2% year over year nationwide in the third quarter, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. That is the largest decline since the Great Recession aside from the second quarter of 2020, when investor activity plummeted due to the onset of the pandemic. It outpaced a 27.4% drop in overall home purchases nationwide.
Investor purchases slumped 26.1% on a quarter-over-quarter basis, the largest quarterly decline on record with the exception of the start of the pandemic. That compares with a 17.4% quarterly drop in overall home purchases.
Investors lost market share for the second quarter in a row as they pumped the brakes on purchases. They bought roughly 65,000 homes in the metros tracked by Redfin in the third quarter, or 17.5% of all homes that were purchased. That’s down from 19.5% in the second quarter and 18.2% a year earlier, but still up slightly from roughly 15% before the pandemic.
In dollar terms, investors bought $42.4 billion worth of homes in the third quarter, down 26.3% from $57.6 billion one year earlier and down 30.5% from $61 billion one quarter earlier. The typical home that investors purchased cost $451,975, up 6.4% from one year earlier but down 4.3% from one quarter earlier.
“It’s unlikely that investors will return to the market in a big way anytime soon. Home prices would need to fall significantly for that to happen,” said Redfin Senior Economist Sheharyar Bokhari. “This means that regular buyers who are still in the market are no longer facing fierce competition from hordes of cash-rich investors like they were last year.”
Investors Purchases Plummet in Pandemic Boomtowns
In Phoenix, investor home purchases slumped 49.4% year over year in the third quarter, the largest decline among the 40 metros Redfin analyzed. Next came Portland, OR (-47.4%), Las Vegas (-44.8%), Sacramento, CA (-43.2%) and Atlanta (-42.2%). Rounding out the top 10 are Charlotte, NC, Miami, Denver, San Diego and Riverside, CA.
Many of the metros where investor purchases declined significantly are places that soared in popularity during the pandemic. Phoenix, Las Vegas, Sacramento, Miami and San Diego consistently rank on Redfin’s list of top migration destinations, which is based on net inflow, or how many more Redfin.com users are looking to move into a metro than out.
“The housing markets that investors are backing out of fastest are those that rose rapidly during the pandemic and are now falling rapidly,” Bokhari said. “That volatility creates a lot of uncertainty, which raises the risk of investors losing money.”
Metros With Largest Declines in Investor Home Purchases: Q3 2022
U.S. metro area
Investor purchases, YoY change
Investor home purchases only increased in five of the metros Redfin analyzed. They jumped 46.4% year over year in Philadelphia, 11.2% in New York, 8% in Baltimore, 5% in Cleveland and less than 1% in Newark, NJ. Baltimore and Newark are among the housing markets holding up best as the overall market slows, along with other relatively affordable places on the East Coast and in the Midwest.
Investors Lost the Most Market Share in Charlotte and Phoenix
Investors lost market share in 14 of the 40 markets Redfin analyzed. Many of those markets are places where investor purchases dropped significantly. In Charlotte, investors bought one-quarter (25.2%) of homes purchased in the third quarter, down from about one-third (32.3%) a year earlier. That 7.1-percentage-point drop was the largest decline among the metros in this analysis. Next came Phoenix (25.8% vs 31.9%; -6.1 pts), Atlanta (27.6% vs 33.1%; -5.5 pts), Portland (10.7% vs 14%; -3.3 pts) and Sacramento (16.4% vs 19.2%; -2.8 pts).
Investors gained the most market share in Philadelphia, where they bought 17.2% of homes purchased, up from 13.4% a year earlier (+3.8 pts). Next came New York (14.9% vs 12.2%; +2.7 pts), Nassau County, NY (12.4% vs 9.8%; +2.6 pts), Anaheim, CA (21.4% vs 18.8%; +2.6 pts) and Baltimore (14.7% vs 12.4%; +2.3 pts).
Overall, investors had the highest market share in Jacksonville, FL, where they bought 29.6% of homes purchased in the third quarter. It was followed by Miami (28.9%), Atlanta (27.6%), Las Vegas (26.9%) and Orlando, FL (26%). They had the lowest market share in Montgomery County, PA (7.1%), Providence, RI (7.3%), Warren, MI (7.7%), Washington, D.C. (8.6%) and New Brunswick, NJ (9.7%).
While investor market share is highest in Jacksonville, investors bought 31.9% fewer properties than they did a year earlier. Many investors are looking to offload properties, according to local Redfin agent Heather Kruayai.
“Almost all of my listings right now are people looking to sell investment properties or second homes,” Kruayai said. “They want to get rid of them now while they still have some value because they’re scared there’s going to be another big crash.”
Investor Purchases of Single-Family Homes Drop 32%—More Than Any Other Property Type
Investor purchases of single-family homes fell 32.3% year over year in the third quarter, declining more than any other property type. Investor purchases of condos/co-ops decreased 27.5%, while purchases of townhouses and multi-family properties both slumped about 18%.
Demand for single-family homes soared during the pandemic as scores of people left condos and apartments in cities for more room in the suburbs, but that demand has eased as the pandemic has subsided and many people have returned to the office and city life.
Still, single-family homes remained the most popular property type among investors in the third quarter, representing nearly three-quarters (72.8%) of investor purchases. Condos/co-ops came in second, at 16.4%, followed by townhouses (6.2%) and multi-family properties (4.6%).
Investor Purchases of High- and Mid-Priced Homes Decline More Than Purchases of Low-Priced Homes
Investor purchases of mid-priced homes fell 37.1% year over year in the third quarter, while investor purchases of high-priced homes fell 35.7%. By comparison, investor purchases of low-priced homes fell 20%.
Demand for high-end goods tends to slow during times of financial stress. Rising interest rates, inflation, a tepid stock market and economic uncertainty have made it less feasible for many people to purchase luxury products, including homes.
Investors also tend to gravitate toward lower-priced homes, which offer more room to generate profits. Low-priced homes made up 43.2% of investor home purchases in the third quarter, while mid-priced homes made up 29.7% and high-priced homes represented 27.1%.
As such, investors had the highest market share in the low-priced market; they bought 23.6% of low-priced homes that sold in the third quarter, compared with 15.3% of mid-priced homes and 13.9% of high–priced homes.
To view the full report, including charts, additional metro-level data and methodology, please visit: https://www.redfin.com/news/investor-home-purchases-q3-2022
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