Redfin Reports Low-Priced Homes Make Up 46% Of Investor Purchases – 'Investors Are Finding A Balance After Several Years Of Whiplash'

Investor home purchases have decreased slightly, but a significant shift in their strategy is evident as they increasingly focus on more affordable options.

While investors bought 2.3% fewer homes in the third quarter than they did during the same period last year, according to real estate brokerage Redfin, 46% of those purchases were lower-priced homes.

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The slight decrease in investor purchases marks a significant shift from the highly volatile pandemic housing market, where annual fluctuations exceeded 100% in both directions.

Redfin's analysis of 39 major U.S. metro areas since 2000 shows that investor home purchases have stabilized near pre-pandemic levels, with quarterly fluctuations. After peaking at nearly 100,000 homes per quarter in 2021, investor activity has now returned to around 50,000 homes per quarter.

Investors spent $38.8 billion on home purchases in the third quarter, a 3.4% increase year over year, mirroring the rise in home prices. In September, investors accounted for 8.3% of home listings, slightly below last year's 8.7% but above pre-pandemic levels.

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"Investors are finding a balance after several years of whiplash: They bought up homes at a frenzied pace in 2021 and the beginning of 2022, then quickly backed off when the housing market slowed as mortgage rates rose," said Redfin Senior Economist Sheharyar Bokhari. "Now there's middle ground. It's less appealing to buy homes to flip or rent out than it was at the start of the pandemic, when demand from both homebuyers and renters was robust. But it's more appealing than it was last year, when soaring home prices and borrowing costs put a big damper on demand."

Investor activity has returned to pre-pandemic levels for several reasons:

• Rising home prices and interest rates have eroded profit margins on home flips, with investor profits on home sales declining from 64% to 55% year over year.
• Increased apartment supply has slowed rent growth, making rental property investments less attractive.

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However, strong rental demand, fueled by affordability challenges for homebuyers, continues to support the rental market. While rents have stabilized nationally, they remain significantly higher than pre-pandemic levels, especially on the East and Midwest Coasts.

Investor home purchases have declined, with their market share falling to pre-pandemic levels of around 14%. After peaking at a record high of 20.9% in early 2022, driven by low mortgage rates and the pandemic-era housing boom, investor activity has not yet fully normalized. The decline reflects a return to pre-pandemic levels of investor home purchases.

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