As the housing market hits a standstill, real estate investors are buying fewer homes than last year, although home flippers are still making money on deals.
Investor home purchases dropped 45% in the second quarter from a year earlier, a new report from Redfin shows. That compares to a drop of 31% in overall home sales.
Investors — homebuyers who intend to either flip or rent out their properties — have been more reactive to the cooling housing market than individual homebuyers. Investors scooped up a greater share of properties during the 2020-2021 frenzy than other homebuyers, and were also quicker to retreat once the market cooled.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Other factors contributing to the decline in home sales include:
- Interest rates. The Federal Reserve increased the federal funds rate, a key overnight bank lending rate, 11 times between March 2022 and July 2023. At the last meeting in July, the central bankers raised rates a quarter of a percentage point to a target range of 5.25% to 5.50% Mortgage rates rose in lockstep, with the average 30-year mortgage rate hitting 7.23% in the week ending Aug. 17, a 21-year record.
- Sellers holding steady. Homeowners and investors locked in record low rates during 2021 and 2022 and have less incentive to sell currently.
- Housing supply drying up. Total listings fell 9.1% year over year in July 2023, with less inventory available across the board.
- Home prices still rising. The median purchase price for investors last year was $467,885 and this year it’s $470,120.
Post-pandemic decline
During the pandemic, investors took advantage of super-low interest rates alongside consumers, fueling a housing boom. Investor purchases climbed to nearly 100,000 homes at the peak. In the second quarter of 2023, investors only snatched up 50,347 homes, representing a 45% drop from 2022.
This trend continues a four-quarter-long growth decline in investor purchases that began in the second quarter of 2022. This period represents the second-largest drop in purchases since the 2008 recession, following a drop of 48% in the first quarter of 2023, the largest ever year-over-decline.
Much like other homeowners, real estate investors are reluctant to put their properties on the market. At only 8% of new listings, investors are holding onto properties without adding to their real estate portfolio. That’s a 36% tumble from the same quarter in the previous year.
Home flippers still profiting
Real estate investors who seek to flip homes are still making money in their endeavors. Redfin Senior Economist Sheharyar Bokhari noted: “Flippers are putting far fewer homes on the market than they were during the same period in 2021 or 2022, and hardly any of them are taking a loss, which would at least give individual homebuyers a somewhat good deal. And the steady decline in investor purchases means they aren’t likely to replenish the housing market with newly renovated homes anytime soon.”
To Bokhari’s point, home flippers (investors who buy properties to renovate and ideally sell at a profit) sold homes for an average of $188,448 more than their initial purchase price in June, the study showed — an increase of 61 percent. However, that's still less than the profits flippers saw last year when homes were selling for an average of $199,946 above the purchase price, a profit of 69%.
Mortgage rates aren’t forecast to decline for a while, so potential investors will want to find the best available rates on a new mortgage. By using our tool in partnership with Bankrate, you can quickly find the best mortgage rates with multiple lenders.
Related Content
-
Stock Market Today: Dow Logs Longest Losing Streak Since AprilThe November Producer Price Index showed that inflation remains a tough beast to tame.
-
Why Uber Stock Is Volatile After GM's Cruise AnnouncementUber stock is swinging this week following news that General Motors is restructuring its Cruise unit. Here's what you need to know.
-
First-time Homebuyers Are Older Than Ever, Survey RevealsFirst-time homebuyers are now in their late 30s and jostle with cash-rich buyers in the race to buy a home, new research from the National Association of Realtors has found.
-
Should You Refinance Your Mortgage Now That the Fed Just Cut Rates?The Fed just cut rates, so mortgage refinance rates will be cheaper. Should you act now, or wait?
-
Mortgage Rates Are Falling: 10 Housing Markets That Could Benefit the MostThese are the top 10 metro areas where the most mortgages are unlocked by lower rates. Plus, the magic number for mortgage rates.
-
With Mortgage Rates Dipping, Is Now a Good Time to Buy a House?Pricing pressure, interest rates, and rising unemployment numbers have sidelined homebuyers. But now that the Fed has cut rates, is it a good time to think about getting back into the market?
-
How Much It Costs to Refinance a Mortgage and Other Questions to ConsiderRefinancing a mortgage works by replacing your current mortgage with a new one. It can save you money or let you tap the equity in your home, but it can take time to break even after upfront costs.
-
How Retirees Can Downsize In Today's Housing MarketRising prices, higher interest rates and a tight supply of smaller homes present challenges. But retirees have an edge.
-
How to Find Foreclosed Homes: Best Foreclosure Listings SitesMaking Your Money Last Find foreclosed homes for sale on these foreclosure listing websites. Search for properties on these free, paid or government sites.
-
Five Housing Markets On the RiseStudy shows homes in five markets are going under contract in less than two weeks, despite a broader national housing market slowdown. Which cities are bucking the trend and why?
