Personal Finance
Investor home purchases drop by almost half – Here’s why that could be good for homebuyers
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Investors have increasingly retreated from the housing market due to climbing borrowing costs and the lingering threat of further home price declines, a recent report said.
Investor home purchases dropped by 45.8% annually in the fourth quarter, according to a Redfin report. Compared to purchases in the third quarter, investor home buying fell by 27% – the largest quarterly decline recorded except for the pandemic’s beginning, the report said. The biggest drop was in single-family home purchases, which fell 49.8% annually in the fourth quarter.
“Many investors are moving their money into other asset classes that offer better returns,” the report said. “For investors who are landlords, slowing rent growth is also making it more challenging to reap large returns.”
The pullback could mean individual buyers have a better chance of snagging a home with deeper-pocket investors out of the picture, according to Redfin.
“It’s possible that investors will start to wade back into the market this year given that mortgage rates have ticked down from their 2022 high — especially if home prices show signs of bottoming,” said Redfin Senior Economist Sheharyar Bokhari. “But it’s unlikely that investors will return with the same vigor they had in 2021.
“That’s good news for individual buyers, who are still grappling with high housing costs but no longer losing bidding war after bidding war to investors,” Bokhari said.
If you are looking to take advantage of lower mortgage rates by refinancing your mortgage loan, or are ready to shop for the best rate on a loan, consider visiting an online mortgage broker like Credible to compare rates, choose your loan term and get preapproved with multiple lenders at once.
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Home prices are cooling, but haven’t bottomed out
Fannie Mae’s latest economic forecast has predicted home prices will drop by over 6% in the next two years. Price growth is projected to decline by 4.2% in 2023, followed by an additional drop of 2.3% in 2024.
U.S. home prices gained only 1% year over year compared to the 15% increase last year, according to Redfin. Additionally, home prices have dropped 11% over the past seven months.
Despite the drop in housing prices, year-over-year sales of US homes declined 36.9% in January, according to the National Association of Realtors.
There are signs that some homebuyers, lured by improving mortgage rates and a drop in home prices, are returning to the market. However, investors have been more reluctant to jump back in, according to Eric Bryant, Openn North America’s executive vice president of strategy.
“Property investors know homebuyers can’t afford mortgages at such high rates and don’t want to overpay themselves, so they’re sitting on the sidelines until a bigger shift in fundamentals turns housing into their favor,” Bryant said. “What we are seeing across our digital property trading platform is more of an investor aversion to the high prices of the homes.
“So with fewer buyers and investors less interested in purchasing, demand will dry and supply will increase,” Bryant continued. “This allows investors to bank on prices dropping more before they buy back into the market.”
If you are ready to shop for a mortgage loan or are looking to refinance an existing one, you can use the Credible marketplace to compare rates and lenders and get a mortgage preapproval letter in minutes.
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These metro areas saw the biggest retreat from investors
The top 10 metro areas that saw the most significant decline in investor purchases in the fourth quarter were places where demand grew the most during the pandemic.
These metro areas are now seeing the largest year-over-year price declines as demand for housing cools.
Pandemic boomtowns of Las Vegas and Phoenix saw the biggest decline, with investor home purchases dropping roughly 67% in the fourth quarter of last year versus a year earlier.
Additionally, Nassau County, New York, experienced a 63% drop, Atlanta a 62.8% drop, and Charlotte, North Carolina, a 61.9% drop. Further, Jacksonville, Florida; Nashville, Tennessee; Sacramento, California; Riverside, California; and Orlando, Florida, saw more than a 50% decline in investor purchases, the report said.
“Investors expanded in these areas during the pandemic to capitalize on surging rents and home values, and are now pulling back as these markets slow relatively quickly because many homebuyers have been priced out,” the report said.
If you are ready to shop for a mortgage loan you could get a better rate by looking at several lenders. Visit Credible to help you compare interest rates from multiple mortgage lenders and choose the one with the best rate for you.
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