Investor home purchases drop record amount in the third quarter

FILE – A Redfin “for sale” sign stands in front of a house on Oct. 28, 2020, in Seattle. The online real estate broker is cutting 862 employees and shutting down its instant-cash-offer subsidiary RedfinNow, another casualty of two-decade high interest rates stoked by the Federal Reserve’s fight against inflation. (AP Photo/Elaine Thompson, File)

Investor home purchases fell by a record amount in the third quarter, outpacing the overall decline in home sales nationwide.  

A new report from the real estate company Redfin found that companies bought around 65,000 homes in the third quarter of 2022, which is down 30 percent from a year earlier. Investor activity dropped the most in single-family home purchases, falling by 32.3 percent year over year in the third quarter. 

The reduction in investor purchase activity corresponds with a decline in home sales that was fueled by high prices and soaring mortgage rates amid a series of interest rate hikes from the Federal Reserve targeting growing inflation. 

These high costs pushed up the typical prices both investors and regular buyers paid for homes. Investors in the third quarter bought $42.4 billion worth of homes, down 26.3 percent from $57.6 billion a year ago.  

The typical home investors purchased was up by 6.4 percent year over year at $451,975. 

Yet a reduction in investor activity could lessen the once intense competition for buyers who are still in the market. 

“It’s unlikely that investors will return to the market in a big way anytime soon. Home prices would need to fall significantly for that to happen,” Redfin senior economist Sheharyar Bokhari, said in a media release. 

“This means that regular buyers who are still in the market are no longer facing fierce competition from hordes of cash-rich investors like they were last year,” Bokhari added. 

Meanwhile, investors are moving away fastest from markets that thrived during the pandemic, like Phoenix and Las Vegas. Prices in the third quarter fell by 49.4 percent in Phoenix and 44.8 percent in Las Vegas. 

“The housing markets that investors are backing out of fastest are those that rose rapidly during the pandemic and are now falling rapidly,” Bokhari said. “That volatility creates a lot of uncertainty, which raises the risk of investors losing money.” 

Still, investor purchase activity increased in five metros tracked by Redfin: Philadelphia, New York, Baltimore, Cleveland and Newark, N.J. — rising the most in Philadelphia. 

Although home purchases are falling among regular buyers and investors across the country, a separate report shows recently declining mortgage rates could offer relief for buyers in immediate need.  

Mortgage rates experienced their largest weekly drop in nearly 40 years last week, with the 30-year fixed rate falling to 6.61 percent. 

This historic drop could save buyers more than $100 each month, according to Redfin. Now the typical monthly mortgage payment across the U.S. is $2,430, down from $2,542. 

“Serious buyers who need to purchase a home as soon as possible can feel good about pouncing on a home this week, knowing it could cost them upwards of $100 less per month than the same home would’ve cost if they’d signed the deal a week earlier,” Redfin deputy chief economist Taylor Marr said in a media release last week. 

“More casual buyers may want to wait a few more months, as there’s reason to be cautiously optimistic that the worst of inflation and high rates are behind us, and monthly payments could come down more,” Marr concluded.

Tags Baltimore Cleveland Federal Reserve Bank housing market Las Vegas New York newark Philadelphia Phoenix RedFin

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