As the U.S. housing market slowed in the third quarter due to rising home prices and high mortgage rates, investor purchases also slowed, according to a new report by Redfin.
The Seattle-based brokerage found that home investor purchases fell 2.3% year over year in Q3 2024, representing little change after four years of volatility.
The report is based on an analysis of home purchase records from 39 metropolitan areas since 2000. According to Redfin, an investor is any institution or business that buys real estate,” including both institutions and mom-and-pop investors.
Investors bought properties worth $38.8 billion in Q3 2024, up 3.4% from last year and in line with rising home prices.
“Investors found a balance after several years of whiplash: They bought homes at a rapid pace in 2021 and early 2022, then pulled back quickly when the housing market tanked as home prices rose,” said Redfin chief economist Sheharyar Bokhari. statement.
“Now it’s in the middle of nowhere. Buying homes to flip or rent is not as attractive as it was at the beginning of the pandemic, when demand from home buyers and renters was strong. But it is much more attractive than last year, when rising house prices and borrowing costs significantly reduced demand.”
Redfin highlighted that investors bought 15.9% of all homes sold in Q3 2024, down from 16.2% last year and the lowest share since the end of 2020. The highest recorded share of homes purchased by investors was 20.9% in Q1 2022, when investors were using low mortgage rates.
Investors have struggled to buy and sell homes for profit, which Redfin says is due to rising home prices and mortgage rates. In October, the average sales price for an investor-owned home was 55% — or $181,567 — more than most investors paid. That was down from a 64% gain a year earlier. But Redfin noted that “interest rates are lower than last year and demand for housing has improved slightly over the past few months.”
Low-priced homes – those priced at less than one-third of the local market value – comprised 45.7% of investor purchases. High and mid-priced homes accounted for 30.4% and 23.9% respectively. Redfin noted that investors prefer lower-priced homes because of lower 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 metropolitan areas analyzed. Las Vegas (22.9%), San Francisco (21.4%) and Los Angeles (20.9%) were next.
Detroit had a great return on investment (ROI), with the average investor selling a home for 135% – or $121,500 – more than the original purchase price of $90,000. Philadelphia (109%) and Newark, New Jersey (106%) followed closely behind.
Redfin notes that more than half of the metros analyzed saw annual declines in ROI, led by Washington, DC, Phoenix and Oakland, California.
Miami saw a 19.4% year-over-year decline in investor purchases, despite having the largest share of investors of any city. Investor purchases also fell 23.8% in neighboring Fort Lauderdale, reflecting growing concern about Florida’s housing market.
“Investors are pulling away from buying homes in Florida for the same reasons people are pulling away: Florida has become a less desirable place to live as the number of natural disasters increases. Additionally, home insurance and HOA fees are increasing,” noted Redfin.
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