Investor Activity Resurges in Housing Market, Driving Profit Surge

Investors are once again making a significant impact on the housing market, with their activity surging after a brief slowdown, according to a recent analysis by Redfin.

At the onset of last year, investors retreated, with their home purchases dropping nearly 50%, closely mirroring the decline in existing home sales, which hit a nearly 30-year low. This downturn marked a departure from the trend observed during the pandemic-driven housing boom when investor purchases more than doubled.

However, a shift occurred as mortgage rates climbed, leading to declines in home values and rents in some areas, denting investors’ profits amidst higher borrowing costs.

Now, investors are making a comeback. Redfin’s analysis reveals that investor home purchases are on the rise again, albeit modestly, marking the first increase in almost two years. In the first quarter of this year, investors acquired approximately 44,000 homes, representing a 0.5% uptick from the previous year.

What’s notable is that investors bought nearly 19% of homes sold in the first quarter, accounting for roughly one in five homes, as per Redfin’s findings. While this figure is lower compared to the peak of the pandemic, it represents the highest share in nearly two years.

The resurgence in investor activity can be attributed to several factors. With home prices and rents trending upwards again and the initial shock of elevated mortgage rates subsiding, investors are showing renewed interest, easing off the brake pedal, according to Redfin. Moreover, investors are now reaping greater profits compared to a year ago.

In March of this year, the typical home sold by an investor yielded a return of over 55%, translating to a profit of close to $175,000. This marks an improvement from the previous year when investors saw profits of around $146,000 per home sold.

Redfin’s analysis further indicates a shift in investor preferences towards both more expensive and more affordable homes. The typical home purchased by investors in the first quarter cost approximately $464,560, marking a 9.2% increase from the previous year. Additionally, investors collectively bought $31.3 billion worth of homes in the first quarter, reflecting a 6.6% year-over-year increase.

Despite the surge in purchases of higher-priced homes, low-priced homes continue to dominate investor transactions, accounting for 47.5% of purchases in the first quarter. Notably, investors are increasingly active in California, particularly in cities like San Francisco and San Diego, where they bought over 23% of homes sold in the first quarter.

While investors continue to invest in both single-family and multifamily homes, their focus has shifted towards single-family properties, which saw a nearly 4% increase in purchases during the first quarter. Single-family homes now represent close to 69% of investor purchases, signaling a growing market share.

However, the dynamics between investors and traditional buyers are evolving. In competitive bidding situations, sellers may prioritize buyers intending to occupy the property, potentially favoring individual buyers over investors.

While institutional investors, such as Blackstone and Invitation Homes, own a relatively small fraction of single-family rentals and homes nationwide, their presence in certain markets, such as Atlanta, may contribute to increased housing costs.

In conclusion, investor activity in the housing market has rebounded after a period of dormancy, driven by improving market conditions and rising profits. While their impact is evident, it remains a complex phenomenon with implications for both buyers and sellers alike.

Also read: Florida Condo Market Sees Price Dip Amid Rising Insurance and HOA Costs, Redfin Reports