Investor home purchases drop 30% as price gains slow

Housing under construction in Atlanta, Georgia, on Sunday, Nov. 13, 2022.

Elijah Nouvelage | Bloomberg | Getty Images

Home sales have dropped for nine straight months, driven by surging mortgage rates, and now investors are pulling back even more than traditional homebuyers.

Investor home purchases dropped just over 30% in the third quarter of this year compared with the same period last year, according to real estate brokerage Redfin. That’s the biggest drop in investor sales since the Great Recession over a decade ago, with the exception of a very brief stall in the first two months of the Covid-19 pandemic in 2020.

The drop in investor sales outpaced the drop in overall home purchases, which were down roughly 27% in the third quarter. The investor share in the overall market also fell to 17.5% of all sales from 18.2% a year ago. The share is still, however, slightly higher than the 15% share seen before the pandemic.

“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,” said Sheharyar Bokhari, senior economist at Redfin. “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.”

Non-investor homebuyers are facing much higher mortgage rates and a shortage of affordable homes for sale. Investors tend to use cash more often than traditional buyers, so they are not quite as influenced by mortgage rates. They are, however, influenced by home prices, which are weakening.

Investor home purchases plunge 30% annually

Home prices are still higher compared with a year ago, but the annual gains are shrinking at an unprecedented pace. The S&P CoreLogic Case-Shiller national home price index was up 13% in August, which is the most recent reading, but that was down from a 15.6% annual gain in July.

“The -2.6% difference between those two monthly rates of change is the largest deceleration in the history of the index (with July’s deceleration now ranking as the second largest),” Craig Lazzara, managing director at S&P DJI, said in a release. “Further, price gains decelerated in every one of our 20 cities. These data show clearly that the growth rate of housing prices peaked in the spring of 2022 and has been declining ever since.”

Investors who are still in the market, however, are still paying higher prices than last year. The typical home purchased by an investor in the third quarter cost $451,975, up 6.4% from a year ago, but down 4.3% from the second quarter.  

Regionally, markets seeing the biggest decline in investor activity were Phoenix, Arizona, Portland, Oregon, Sacramento, California, and Atlanta, Georgia. All of those were some of the hottest pandemic-driven markets that are now seeing the steepest slump in overall sales. Miami also saw an outsized drop in investors, suggesting that even the massive drive to the Sun Belt is finally easing.

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