RE Investors Pull Back, Buy 49% Fewer Homes

Investor purchases dropped almost by half year-to-year in the first quarter. In Fla., it ranged from a 56.6% decline in Jacksonville to 28.8% in West Palm Beach.

SEATTLE – Real estate investors purchased 48.6% fewer homes in the first quarter of 2023 than they did a year earlier as elevated interest rates along with declining rents and housing values ate into potential profits, according to a report from Redfin. Of total home sales, investors had a 17.6% share.

It’s the largest annual decline since Redfin started tracking investor purchases, and it’s higher than a 40.7% drop in overall home purchases in 40 major metros tracked by Redfin.

However, part of the drop relates to the strength of the investor market in the first quarter of 2022 – it’s not that the drop in 1Q 2023 investors was so bad, it’s that the investor market in 1Q 2022 was so good. The percentage of investor purchases was down year-to-year in 1Q, but it’s still higher than any quarter on record before the pandemic.

On a quarter-to-quarter basis, investor purchases were down 15.9% compared to the fourth quarter of 2022. Comparatively, overall home purchases dropped less at 14.7%.

Florida saw diverse results metro-by-metro in the number of investor purchases and year-to-year declines. The number of Jacksonville investors, for example, fell by 56.6% year-to-year, though they were part of almost one in five purchases (18.4%).

At the other end of the spectrum, the share of real estate investors only fell 28.8% year-to-year in West Palm Beach, though as a percentage of all sales, the investor percentage is just shy of Jacksonville numbers at 17.3%.

1Q 2023 investor purchases in Florida

  • Jacksonville: Down 56.6% – an 18.4% share of all home purchases
  • Tampa: Down 54.8% – a 17.5% share of purchases
  • Orlando: Down 54.7% – a 20.1% share of purchases
  • Miami: Down 44.9% – a 30.0% share of purchases
  • Fort Lauderdale: Down 46.9% – an 18.4% of purchases
  • West Palm Beach: Down 28.8% – a 17.3% of purchases

“While investors have pumped the brakes on home purchases, they’re still scooping up a bigger share of homes than they were before the pandemic, which can create challenges for individual buyers at a time when there are so few homes for sale,” says Redfin Senior Economist Sheharyar Bokhari. “Investors have gravitated toward more affordable properties due to still-high housing costs and rising mortgage rates, which has left first-time homebuyers with fewer starter homes to choose from.”

Investors bought up scores of homes during the pandemic as record-low mortgage rates and skyrocketing demand made it very profitable historically. But they’re now pulling back in as interest rates rise since even cash buyers often take out non-mortgage loans to cover renovations and other expenses.

“It’s been about eight months since one of my listings sold to an investor,” says Jacksonville Redfin Premier real estate agent Heather Kruayai. “I rarely get offers from investors these days, and when I do, it’s a lowball offer on a house that’s been sitting for a while. Some smaller companies and mom-and-pop investors are still active in the market, but the big corporations aren’t buying anymore.”

Investors may pull back from the housing market further in the second quarter, though investor purchases typically rise in the spring.

For investors who plan to be landlords, slowing rent growth is creating another challenge.

In some areas of the country, flipping has also become a challenge. In March, about one of every five homes (20.8%) sold by an investor closed for less than the investor originally paid for it.

Sun Belt states see the biggest drop for investors

In Nassau County, N.Y., investor home purchases fell 67.9% year over year in the first quarter – the largest decline among the 40 metros Redfin analyzed. Of the top 10, all metros saw a drop greater than 50%:

  1. Nassau County, N.Y. (down 67.9%)
  2. Atlanta (down 66%)
  3. Charlotte, N.C. (down 66%)
  4. Phoenix (down 64.2%)
  5. Nashville, Tenn. (down 60.4%)
  6. Las Vegas (down 60.2%)
  7. Jacksonville (down 56.6%)
  8. Philadelphia (down 56.5%)
  9. Tampa (down 54.8%)
  10. Orlando (down 54.7%)

All but two of the metros (Nassau County and Philadelphia) are in Sun Belt states, which soared in popularity among homebuyers during the pandemic. Investors piled in to capitalize on surging rents and home values, and are now pulling back.

Investors lost most market share

Investors lost market share in 17 of the 40 metros Redfin analyzed. Many of those are places where investor purchases dropped significantly. In Charlotte, investors bought 18.4% of homes purchased in the first quarter, down 14.1 percentage points (ppts) from 32.5% a year earlier. That’s the largest percentage-point drop among the metros in this analysis.

Next came Atlanta (down 14 ppts), Phoenix (down 11.1 ppts), Jacksonville (down 10.7 ppts) and Nashville (down 9.3 ppts).

© 2023 Florida Realtors®