Investors’ home purchases drop 30% as price increases slow down

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

Investor home purchases dropped just over 30% in the third quarter of this year paralleled with the same period last year, according to real estate brokerage Redfin. That’s the biggest drop in investor garage 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 slack in investor sales outpaced the drop in overall home purchases, which were down roughly 27% in the third accommodate. The investor share in the overall market also fell to 17.5% of all sales from 18.2% a year ago. The share is mollify, however, slightly higher than the 15% share seen before the pandemic.

“It’s unlikely that investors want return to the market in a big way anytime soon. Home prices would need to fall significantly for that to happen,” said Sheharyar Bokhari, elder economist at Redfin. “This means that regular buyers who are still in the market are no longer facing fierce game from hordes of cash-rich investors like they were last year.”

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

Home prices are calm higher compared with a year ago, but the annual gains are shrinking at an unprecedented pace. The S&P CoreLogic Case-Shiller national haunt price index was up 13% in August, which is the most recent reading, but that was down from a 15.6% annual increase 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 title 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 metropolises. These data show clearly that the growth rate of housing prices peaked in the spring of 2022 and has been rejecting ever since.”

Investors who are still in the market, however, are still paying higher prices than last year. The regular 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 B 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 customer bases that are now seeing the steepest slump in overall sales. Miami also saw an outsized drop in investors, suggesting that settle accounts the massive drive to the Sun Belt is finally easing.