Residential real estate investors bought 48.6% fewer homes in the first quarter of 2023 than they did in the same quarter one year prior, according to new figures from Redfin.
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.”
