As the U.S. housing market slowed down in the third quarter due to rising home prices and higher mortgage rates, investor purchases also ramped down, according to a new report by Redfin.
The Seattle-based brokerage found that real estate investor purchases dropped by 2.3% year over year in Q3 2024, representing a small change after four years of fluctuations.
The report is based on an analysis of home purchase records from 39 of the most populous metro areas since 2000. According to Redfin, an investor is “any institution or business that purchases residential real estate,” which includes both institutional and mom-and-pop investors.
Investors purchased $38.8 billion worth of properties in Q3 2024, up 3.4% from a year earlier and in line with home-price increases.
“Investors are finding a balance after several years of whiplash: They bought up homes at a frenzied pace in 2021 and the beginning of 2022, then quickly backed off when the housing market slowed as mortgage rates rose,” Redfin senior economist Sheharyar Bokhari said in a statement.
“Now there’s a middle ground. It’s less appealing to buy homes to flip or rent out than it was at the start of the pandemic, when demand from both homebuyers and renters was robust. But it’s more appealing than it was last year, when soaring home prices and borrowing costs put a big damper on demand.”
Redfin highlighted that investors purchased 15.9% of all homes sold in Q3 2024, down from 16.2% a year earlier and the lowest share since the end of 2020. The highest recorded share of investor-purchased homes was 20.9% in Q1 2022, when investors were taking advantage of low mortgage rates.
Investors faced difficulties purchasing and reselling homes for a profit, which Redfin attributed to rising home prices and mortgage rates. In October, the typical sales price for an investor-owned home was 55% — or $181,567 — more than what most investors paid. That was less than the 64% profits one year earlier. But Redfin noted that “interest rates are lower than a year ago and home buying demand has improved a bit over the last few months.”
Low-priced homes — those priced in the bottom one-third of their local market — comprised 45.7% of investor purchases. High-priced and mid-priced homes accounted for shares of 30.4% and 23.9%, respectively. Redfin noted that investors prefer low-priced homes due to low acquisition costs and larger pools of potential buyers or renters.
Miami (28.2%); Anaheim, California (24.3%); and San Diego (23.3%) had the largest shares of investor home purchases among all metro areas analyzed. Las Vegas (22.9%), San Francisco (21.4%) and Los Angeles (20.9%) were next.
Detroit had the largest return on investment (ROI), with the typical investor selling a home for 135% — or $121,500 — more than the initial purchase price of $90,000. Philadelphia (109%) and Newark, New Jersey (106%) followed closely behind.
Redfin notes that more than half of the analyzed metros saw annualized declines in ROI, led by Washington, D.C., Phoenix and Oakland, California.
Miami saw a 19.4% year-over-year decline in investor purchases, despite having the largest investor share of any city. Investor purchases also fell by 23.8% in neighboring Fort Lauderdale, indicating growing apprehension for the Florida housing market.
“Investors are backing off from buying homes in Florida for similar reasons individuals are backing off: Florida has become a less desirable place to live as the intensity and frequency of natural disasters increase. Additionally, home insurance and HOA fees are skyrocketing,” Redfin noted.