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Investor home purchases drop 30% as prices slow

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

Elie Nouvelage | Bloomberg | Getty Images

Home sales have fallen for nine straight months, driven by soaring mortgage rates, and now investors are pulling back even more than traditional home buyers.

Investor home purchases fell just over 30% in the third quarter of this year compared to the same period last year, according to real estate broker Redfin. This is the biggest drop in investor selling since the Great Recession over a decade ago, barring a very brief drop 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 fell about 27% in the third quarter. Investors’ share of the overall market also fell to 17.5% of all sales, from 18.2% a year ago. The share, however, is still slightly higher than the 15% share seen before the pandemic.

“Investors are unlikely to return to the market anytime soon. House prices would have to fall significantly for that to happen,” said Sheharyar Bokhari, senior economist at Redfin. “It means regular buyers who are still in the market no longer face fierce competition from hordes of cash-rich investors like they did last year.”

Homebuyers who are not investors face much higher mortgage rates and a shortage of affordable homes for sale. Investors tend to use cash more often than traditional buyers, so they’re not as influenced by mortgage rates. They are, however, influenced by house prices, which are weakening.

Home prices are still higher than a year ago, but annual gains are shrinking at an unprecedented rate. The S&P CoreLogic Case-Shiller National Home Price Index rose 13% in August, the most recent reading, but that’s down from a 15.6% annual gain in July.

“The -2.6% difference between these two monthly rates of change is the largest deceleration in the history of the index (with July’s deceleration now ranking second),” said Craig Lazzara, chief executive. of S&P DJI, in a press release. “Additionally, price gains have slowed in each of our 20 cities. This data clearly shows that the rate of house price growth peaked in the spring of 2022 and has been declining ever since.”

However, investors who are still in the market 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, the markets that saw the biggest drop in investor activity were Phoenix, Arizona, Portland, Oregon, Sacramento, California and Atlanta, Georgia. All of these markets were among the hottest markets due to the pandemic that are currently experiencing the steepest drop in overall sales. Miami has also seen an outsized drop in the number of investors, suggesting that even the massive push into the Sun Belt is finally easing.


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