Investors bought 41,181 homes in the U.S. metro areas tracked by Redfin during the first three months of this year, down from 80,128 homes in Q1 2022. By percentage, that’s the largest year-over-year plunge ever recorded by the real estate brokerage. It also exceeded the 40.7% plummet in all home purchases (including owner-occupants) in the 40 major cities for which Redfin has data.

On a dollar value basis, investors bought $27.5 billion in homes during Q1 2023 in the cities tracked by Redfin. That’s down 46.3% from the $51.2 billion during the same quarter in 2022.

Investor purchase activity was also down 15.9% since fourth-quarter 2022. In comparison, total home purchases fell 14.7% over the same time frame, per Redfin’s data.

The annualized decline in Q1 2023 is somewhat inflated, given that home purchases by investors were near a record high in Q1 2022. The all-time quarterly peak recorded by Redfin was 95,124 in third-quarter 2021.

Still, investors are pulling back from the market due to the same lagging fundamentals that are hampering consumer purchases of homes. Declining rents, heightened interest rates and decreasing home values have dented potential investor profits. Approximately one in seven homes resold by an investor in March 2023 sold for less than the investor’s original purchase price — a share just below the all-time high set only one month prior.

Some investors remain undeterred, since a larger share of investors buy homes with cash compared to the buyer pool at large. But many investors still feel the sting of higher interest rates because they often take out non-mortgage loans for renovation costs and other expenses.

“It’s been about eight months since one of my listings sold to an investor,” said Heather Kruayai, a Redfin Premier real estate agent in Jacksonville. “I rarely get offers from investors these days and when I do, it’s a lowball offer on a house that’s been sitting for a while. Some smaller companies and mom-and-pop investors are still active in the market, but the big corporations aren’t buying anymore.”

Still, while investor homebuying activity has fallen, it remains higher on a historical basis. This can be problematic at a time when market inventory is so limited, said Sheharyar Bokhari, Redfin senior economist. Some 17.6% of homes in the markets tracked by Redfin were purchased by investors in first-quarter 2023, higher than any quarter prior to the COVID-19 pandemic. Investors hit their peak market share of 20.4% in Q1 2022.

“While investors have pumped the brakes on home purchases, they’re still scooping up a bigger share of homes than they were before the pandemic, which can create challenges for individual buyers at a time when there are so few homes for sale,” Bokhari said. “Investors have gravitated toward more affordable properties due to still-high housing costs and rising mortgage rates, which has left first-time homebuyers with fewer starter homes to choose from.”

The post Investor activity falls nearly 50% year over year, according to Redfin appeared first on Scotsman Guide.

Per the company’s year-end 2022 U.S. home flipping report, 407,417 single-family homes and condominiums were flipped nationwide last year. That’s up 14% year over year and up 58% from 2020 to reach the highest number of flips since at least 2005. Home flips comprised 8.4% of all home sales, also the highest since 2005. For comparison, flips represented 5.9% of home sales in 2021 and 5.8% in 2020.

But there’s less money in it for investors than there used to be. Home flips in 2022 sold for a median price of $320,000 nationwide, compared to a median original purchase price of $252,100. That’s a gross profit of $67,900, down 3% annually, and equates to only a 26.9% return on investment (ROI) compared to the investor’s original acquisition price.

It’s the smallest return since at least 2008 and it’s the second major decline in profit margins for flips in two years. Consider that the home flip ROI was 41.9% in 2020 and 32.6% in 2021. The median nationwide resale price on flipped homes grew by 12.3% last year, but the median price investors paid when they originally bought the homes they flipped rose 17.3%.

In fact, with the median value of home flips rising more slowly than investors’ median purchase price, flippers saw their profit margins fall for the fifth time in the past six years. Returns on home flips have been steadily on the wane since 2017, exacerbated most recently as affordability has stalled homebuyer demand and home prices have declined.

“Last year, home flippers throughout the U.S. experienced another tough period as returns took yet another hit,” Attom Data CEO Rob Barber said. “For the second straight year, more investors were flipping but found no simple path to quick profits.

“Indeed, returns are now at the point where they could easily be wiped out by the carrying costs during the renovation and repair process, which usually accounts for 20% to 33% of the resale price. This year will reveal more about whether investors decide to find different ways to profit from home flipping or take a step back and wait for conditions to get better.”

The post Home flipping activity rises to recent high, but profit margins fall again appeared first on Scotsman Guide.

After the share of single-family home purchases made by investors fell to 21% in June 2022, it rebounded to 26% in September and has remained in this neighborhood since then. That’s about two percentage points lower than the peak of 28% set in February 2022 but still far above the levels reached before the pandemic-induced housing boom began.

Investors still purchased fewer homes in the fourth quarter compared to a year earlier, mirroring non-investors and the market as a whole. On average, investors bought 81,000 homes per month in Q4 2022, a 25% plunge from the activity seen in Q4 2021. But while owner-occupied purchases during Q4 2022 were well below the fourth-quarter levels in 2019 and 2020, investor purchases were generally on par with activity during these periods.

Digging deeper, the data shows that small investors are making more noise in the relatively quiet marketplace. Investors who own fewer than 10 properties saw their share of total investor purchases grow from 45% to 48% between September and December of last year. Conversely, mega-investors (those with more than 1,000 properties) appear to be showing more restraint, with their share of investor purchases falling from 11% in September to 9% in December.

Medium-sized investors (owners of 11 to 100 properties) and large investors (owners of 101 to 1,000 properties) largely held steady during the same time frame at 35% and 8% of investor purchases, respectively.

All four groups, however, hit the brakes on investment activity in the winter, regardless of market share movement. For example, small investors bought 47,000 properties in September, but that figure dropped to 36,000 in December. Medium-sized investors slowed their roll from 32,000 purchases in September to 27,000 in December.

While investor share grew in the winter, CoreLogic expects it to slip again soon. With spring on the way, owner-occupied buyers should come back into the market. CoreLogic noted, however, that investor activity appears to be settling into an average share between 22% and 26%, close to the levels held prior to the pandemic.

The post After summer stall, residential investor rebound continues in fourth-quarter 2022 appeared first on Scotsman Guide.