Investors drop from housing market, but likely not for good

Investors made a record retreat from buying homes last quarter in a marked cooldown from the pandemic-era surge in activity. 

Investors’ share of U.S. home purchases fell by a record 45.8 percent year over year in the fourth quarter, according to a Redfin report. The drop surpassed the previous record for an annual decline recorded during the subprime mortgage crisis in 2008. 

The decline was down from a big fourth quarter in 2021 for investors, when they purchased more than 89,000 homes. Investors purchased more than 48,000 homes in the most recent full quarter.

Purchases also declined by 27 percent from the third quarter, which would’ve been a record had it not been for the onset of the pandemic. That decline was 1.1 percentage points below the slide in overall home sales from quarter to quarter.

As a result, investor market share hasn’t changed much. In the 40 metros tracked in the report, investors purchased 17.8 percent of all homes sold. That’s actually a slight increase from their share in the third quarter, but down from 19.4 percent in the fourth quarter of 2021. 

Year-over-year investor purchases declined more than overall purchases, but both investors and individuals are facing headwinds like increased borrowing costs.

Mortgage rates jumped this week, but have remained for several months below the 7 percent peak recorded in the fall Coupled with waning home prices cooling rates could bring investors back to the table.

In good news for buyers who were constantly losing bidding wars to investors with big war chests, Redfin senior economist Sheharyar Bokhari said “it’s unlikely that investors will return with the same vigor they had in 2021.” 

Investor purchases saw their biggest drop in pandemic boomtowns and iBuyer hotspots, particularly in Las Vegas (down 67 percent year-over-year) and Phoenix (-66.7 percent). Long Island’s Nassau County also saw investor purchases drop massively (63 percent).

Baltimore was the only market to see a rise in investor purchases, up a slight 1.4 percent. New York and New Brunswick saw relatively modest decreases of 7.9 percent and 10.3 percent, respectively.

Investors had the highest market share in Miami, accounting for 30.6 percent of purchases. New York and Nassau County both featured market share jumps of more than 4 percentage points from the previous year.

In terms of property type, investor purchases of single-family homes fell a record 49.8 percent from the previous year. But it easily remained the most popular property type among institutions and businesses, making up 69.6 percent of investor buys in the quarter.