Investors took a hard pivot away from home purchases in the third quarter, as rising borrowing costs appeared to reverse the sector’s record activity in a matter of months.
Investor home purchases dropped 30.2 percent year-over-year last quarter, according to Redfin data. Outside of the onset of the pandemic, it was the biggest decline in investor home purchases since the Great Recession.
Investor purchases dropped 26.1 percent from the second quarter, outpacing overall home sales decline of 17.4 percent in the same period.
The grip investors have held on the housing market is declining, too.
After peaking at 20.2 percent in the first quarter, the share of home purchases made by investors was 17.5 percent in the third quarter. That’s down from the previous quarter and the previous year, but still slightly up from pre-pandemic levels.
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Slowing growth across home prices and rents have added to investors’ hesitance,
“It’s unlikely that investors will return to the market in a big way anytime soon,” Redfin senior economist Sheharyar Bokhari said.
Investors may have slowed down purchases, but there are some glimmers of possibility in the cooling market. Homebuilders stuck with excess inventory are reportedly offering deep discounts to investors willing to buy in bulk, slashing up to 20 percent off retail value.
Major players are also trying to jump into the single-family rental market. JPMorgan Chase is teaming up with Haven Realty Capital to acquire $1 billion in single-family rentals.
Redfin’s report said “pandemic boomtowns” lost the biggest share of investor home purchases. Phoenix saw the biggest year-over-year drop — down nearly 50 percent — and Miami marked a 37.7 percent decrease from the previous year. New York and Newark were among the five markets to see increases in investor purchases.
Overall, investors purchased $42.4 billion worth of homes in the third quarter, down 30.5 percent from the previous quarter and 26.3 percent year-over-year.The typical home investors bought cost roughly $452,000, an increase of 6.4 percent year-over-year but a 4.3 percent decline from the second quarter.