Investors have reacted to the slowing housing market in different ways, with some taking advantage of slowing competition and strong rental demand, and others pausing in hopes of lower prices and more great economic certainty in the future.
(NASDAQ: RDFN) – Real estate investors bought 87,500 homes in the United States in the second quarter, up 11% quarter-over-quarter and 5.9% year-over-year, according to a new report by Redfin (www.redfin.com), technology-powered real estate brokerage. That’s down from an all-time high of 93,700 in the third quarter of 2021, the peak of the pandemic-driven home-buying spree. Yet investors are buying far more homes than before the pandemic; they purchased about 60,000 homes per quarter in 2019.
Investor market share has also started to stabilize, but remains above pre-pandemic levels. Investors bought 19.4% of homes sold in the second quarter, down slightly from a record 20.1% in the first quarter, the first decline after nearly two consecutive years of increases. But it is up from 16.2% a year earlier and around 15% per quarter in 2019.
In dollar terms, investors bought a record $60.1 billion worth of real estate in the second quarter, compared with $50.5 billion in the first quarter and $54.5 billion a year earlier.
“The slowdown in the overall real estate market is motivating some investors and scaring off others,” said Sheharyar Bokhari, senior economist at Redfin. “Investors are grappling with exorbitant real estate prices, just like other buyers. Those considering turning homes into rentals are still in the market, as high rents help offset the cost of the home, and the home will likely increase in value over time. Others are driven by discounts from homebuilders looking to sell additional inventory as individual buyers pull back. But investors in the flip sector have faster turnaround times, so they’re hesitant because the prospect of lower house prices means they may lose money when they get back on the market in six months or a year.”
“Investor buying has probably not rebounded to 2021 levels, but it will likely remain more common than before the pandemic as the housing market is stable compared to today’s volatile stock market. rental properties will continue to cash in, with strong demand and vacancy rates near record lows,” Bokhari continued. “But investors will be less of a barrier to repeat buyers as the slowing housing market reduces competition.Investors and individual buyers who can afford to buy homes have a head start because the price of other potential buyers has been priced out.”
Affordable and expensive home purchases plateau after pandemic-driven surge
Investors bought about 35,000 homes at low prices in the second quarter, down 6% quarter-over-quarter and 7.6% year-over-year. But investors are still buying more houses at lower prices than before the pandemic; they bought about 30,000 per quarter in 2019.
The story is similar for mid-priced and high-priced purchases. Investors bought around 28,000 mid-priced homes, up 25.3% from a year earlier and down from a record 31,000 in the third quarter of 2021. But that’s almost double the Pre-pandemic levels: Investors bought about 15,000 mid-priced homes per quarter in 2019. Investors bought about 25,000 high-priced homes, up 8.9% year-over-year . Although this figure is down from the record set in the third quarter of 2021, it is well above the approximately 15,000 per quarter in 2019, before the pandemic.
Investors’ market share is at or approaching record levels for low- and mid-priced homes. Real estate investors bought 25% of low-cost homes sold in the second quarter, comparable to the record 25.1% set in the first quarter and 21.6% a year earlier. They bought a record 18.8% of mid-priced homes, down from 17.9% in the first quarter and 13.5% a year earlier. Investors bought 15.3% of high-priced homes that sold in the second quarter, down from a record 16.5% at the end of 2021, but up from 13.3% a year earlier.
Purchases of single-family homes, by far the most popular property type with investors, have stabilized but remain well above pre-pandemic levels
Broken down by property type, investor purchases of single-family homes, condos and multi-family properties follow the same trend as the broader investor market: stabilizing but still well above pre-pandemic levels . Investors bought a record number of townhouses.
Investors bought nearly 65,000 single-family homes in the second quarter, up 8.5% from a year earlier. That’s down from the record high of around 70,000 set in the third quarter of 2021, but up from around 40,000 per quarter before the pandemic.
Investors bought about 14,000 condos, down 4.3% year over year, but up from about 10,000 per quarter before the pandemic. They bought around 3,500 multi-family properties, down 4.1% year over year and up from around 3,000 per quarter before the pandemic. Investors bought a record 5,300 townhouses, up 10.9% year-over-year. That compares to about 3,000 townhouse purchases per quarter before the pandemic.
In Jacksonville, investor purchases are up more than 40% from a year earlier
Investors bought 31.9% of homes sold in Jacksonville, Fla., in the second quarter, the highest market share of metros in this analysis. It is closely followed by Atlanta, where investors bought 31.8% of homes. Next come Las Vegas (31.5%), Phoenix (31.2%) and Miami (29%).
Investor purchases increased from a year earlier and a quarter earlier in the five metros with the largest market shares. They were up 40.7% year over year in Jacksonville, 28.2% in Atlanta, 13.9% in Las Vegas, 2.3% in Phoenix and 9.3% in Miami.
Providence, RI was the least popular metropolis with investors, with investors holding a 7.3% market share. This is followed by Washington, DC (8.1%), Montgomery County, PA (8.3%), Seattle (8.7%) and Warren, MI (9.5%). Investor purchases increased from a year earlier in three of these five locations. The exceptions are Seattle and Warren, where purchases fell 18.8% and 17.6%, respectively.
To read the full report, including methodology and additional data at the metropolitan level, visit: https://www.redfin.com/news/investor-home-purchases-q2-2022/.
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