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Yield Curve Signals U.S. Recession On the Horizon
Yield Curve Signals U.S. Recession On the Horizon

Investors Exit Homebuying Market

Homebuying investors are concerned that houses they might acquire will fall in value as the economy weakens.
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Elevated home prices and soaring mortgage rates have pushed people who are looking for homes as residences out of the market. Of that, you're well aware.

But you may not know that investors are pulling back from homebuying, too, and the worry among them may be more falling home prices than rising prices.

Investor home purchases fell 30.2% in the third quarter from a year earlier, the biggest drop since the 2007-09 recession, except for the second quarter of 2020, when the pandemic began to rage.

The descent of investor home purchases exceeded the 27.4% drop in overall home purchases.

The numbers come from a study by real estate brokerage Redfin, which crunched the numbers from 40 of the most populous metropolitan areas.

Investors bought about 65,000 homes in the third quarter, or 17.5% of all homes that were acquired. That’s down from 19.5% in the second quarter and 18.2% a year earlier, but still up from roughly 15% before the pandemic.

Home-Purchase Dollar Figures

In dollar terms, investors bought $42.4 billion of homes in the third quarter, down 26.3% from a year earlier and down 30.5% from the second quarter.

The typical home that investors purchased cost $451,975, up 6.4% from a year ago but down 4.3% from Q2.

“Real estate investors are retreating because the prospect of substantial home-price declines puts them at risk of losing money,” the Redfin report said.

“Nationwide, housing prices are up just 3% year over year -- the slowest annual growth since 2020 -- and they’re already lower than a year ago in some metros.”

Higher mortgage rates also are discouraging investors. And slowing rent-payment growth is weighing on investors who would be landlords.

“It’s unlikely that investors will return to the market in a big way anytime soon,” Redfin senior economist Sheharyar Bokhari said. “Home prices would need to fall significantly for that to happen.”

Cities Leading the Purchase Decline

The biggest year-on-year slides in home purchases came in Phoenix (49.4%), Portland, Ore., (47.4%), Las Vegas (44.8%), Sacramento, Calif., (43.2%) and Atlanta (42.2%).

“The housing markets that investors are backing out of fastest are those that rose rapidly during the pandemic,” Bokhari said. “That volatility creates a lot of uncertainty, which raises the risk of investors losing money.”

For those of us buying a home to live in, affordability is a major issue.

"The median income needed to buy a typical home has risen to $88,300, almost $40,000 more than it was prior to the start of the pandemic, back in 2019," said Lawrence Yun, chief economist of the National Association of Realtors.

If you’ve bought a home recently, you know what it’s like to meet your mortgage obligations. The monthly mortgage payment on a typical existing single-family home with a 20% down payment was $1,840 in the third quarter, NAR reported.

The figure soared 50%, or $614, from $1,223 a year ago.