Investor Home Purchases Drop 45% in Q2 2023

Real estate investors are buying 45% fewer homes in the second quarter of 2023 than they were in the same period last year, according to a new report from Redfin. In fact, the report found that investors purchased 19% of all homes sold in the second quarter, down from 32% in the same period last year. This is the lowest level of investor activity since the third quarter of 2020. So what’s behind this new market activity?

The Usual Culprits

Redfin’s research indicated that the decline is being driven by rising mortgage rates and a cooling housing market, two factors that are highly interrelated. Let’s take a closer look at the factors involved in this decline in investor activity.

• Rising mortgage rates: Mortgage rates have been rising steadily since the beginning of the year as the US Federal Reserve raises the base lending rate to combat inflation. As a result, it’s become much more expensive for investors to finance home purchases.
• Cooling housing market: The housing market has been cooling in recent months, as both rising interest rates and inflation have made it more difficult for homebuyers to afford homes.
• Lack of inventory: The inventory of homes for sale is still low, but it has been increasing in recent months. This is making it more difficult for investors to find homes to buy, which can be a frustrating experience for buyers looking for affordability.

The Potential Impact on the Market

The decline in investor activity isn’t good news in most cases. In fact, this lack of activity from investors could have a number of impacts on the property markets. Some of these might be advantageous in certain circumstances, however. An example of this is how the decline could help to slow the pace of home price appreciation. As investors buy fewer homes, there will be less demand for homes, which could help to cool prices.

Additionally, homebuyers might find it easier to compete with investors in such situations. With fewer investors in the market, homebuyers will have a better chance of winning bidding wars. This is good news for homebuyers, but more competition means fewer potential opportunities for investors. Finally, the decline could lead to more homes coming onto the market. As investors sell their homes, there will be more inventory available for homebuyers.

“Wait and See” is the Only Approach

The full impact of the decline in investor activity remains to be seen. However, it is likely to have a moderating effect on the housing market. Again, this will be good news for homebuyers who are currently finding it quite a challenge to purchase property. A combination of sky-high interest rates, low inventory, and home prices that have yet to catch up to the new normal has caused more than one homebuyer some considerable consternation as late. A moderate correction for the property market would provide some respite to these house hunters.

For real estate investors, though, the outcome looks less clear-cut. A moderating effect on the industry would reduce earning potential for investment properties, which is less than ideal. However, there’s no real way to predict which way the market will break with certainty, thanks to the inherent volatility of the real estate sector in its current form. Real estate investors need to keep a close watch on the markets to ensure they’re not caught unawares by new developments in the coming months to be sure.