Investor Home Purchases Decline, Reflecting Cooling Real Estate Trends
Investor activity in the real estate market is showing signs of waning as the frenzy that characterized the pandemic-era buying spree begins to fade. According to a recent analysis by Realtor.com, home purchases made by investors have seen a significant decline in the first three quarters of 2023, with an average drop of 32.9% year-to-date in September compared to the previous year.
Analysis Shows Investor Activity Drop in 2023 Housing Market
The decline in investor activity has outpaced the overall drop in housing market activity during the same period, which fell by 25%. The study found that from January through September last year, investors purchased an average of 10.8% of the houses sold each month. Although this figure is lower than the 12% recorded during the same period in 2022, it is still higher than pre-COVID levels. The share of investor buyers reached its peak in February 2022 at 13.1%.
Large Investors Retreat as COVID-Era Housing Boom Cools Off
In the early stages of the pandemic, when housing demand skyrocketed and rents surged, larger investors had an advantage over smaller investors. The analysis revealed that in January 2020, large investors accounted for 22.3% of investment purchases. This share increased to a high of 34.1% in October 2021, potentially driving the surge in cash deals at that time due to access to equity. However, larger investors are now scaling back their activities amid less-certain conditions in the housing market.
High Prices and Falling Rents Deter Investors in Housing Market
High prices and falling rents have contributed to the decline in investor activity. A shortage of homes for sale continues to drive prices higher, and while interest rates have eased slightly in recent months, they remain significantly above the pandemic-era lows. In December, the median sales price for a home in the U.S. increased by 4.4% to $363,371. Simultaneously, the average 30-year fixed-rate mortgage stands at 6.66% according to Freddie Mac data.
Housing Affordability and Market Conditions Impact Investor Activity
Realtor.com’s senior economic research analyst, Hannah Jones, predicts that housing affordability will improve slightly in 2024 but will remain relatively unattainable for many buyers. This suggests that investor activity is unlikely to reach the levels seen during the pandemic boom. The combination of high prices, high mortgage rates, and falling rents has made real estate investment less appealing to investors. As a result, many are taking a step back and reassessing their strategies in the current housing market.
In conclusion, the real estate market is experiencing a shift as the buying frenzy from the pandemic era begins to wear off. Investor activity has declined significantly in 2023, reflecting the cooling trends in the housing market. Larger investors, who initially dominated the market, are now retreating, and high prices and falling rents are deterring many investors from participating. As housing affordability remains a challenge, it is unlikely that investor activity will return to pre-pandemic levels in the near future.
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