After A Two-Year Lull, Investors Are Buying Homes Again — California Leads The Surge

After nearly two years of a market cool-down, real estate investors are stepping back into the arena, marking the first increase in home purchases since mid-2022.

With a resurgence in California, where cities like San Jose and Oakland have seen jumps of over 20% in investor activity, the landscape is showing signs of renewed investor confidence driven by rising home values and rents.

The overall uptick in investor purchases, at 0.5% from the previous year, indicates a potential shift in housing market dynamics, according to an analysis issued by Redfin last week. The change comes after a lull when high interest rates and economic uncertainty pushed many investors to the sidelines.

Now, with a 55% increase in profits from homes sold in March and a surge in purchases of single-family homes, investors are increasingly viewing the market as ripe for investment once again. Their renewed participation is contributing to the current market scenario where competition with first-time homebuyers is intensifying, especially in high-demand urban centers.

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"Investor activity is steady," said Connie Durnal, a Dallas-based Redfin agent, in the analysis. "When home prices got crazy high during the pandemic, investors sold out. But several months ago, they started to ramp back up."

The actual scale of investments paints a broader picture of the market’s dynamics. Investors purchased around 18.7% (44,000) of all U.S. homes in the first quarter, Redfin noted, a slight increase from the previous year — yet significant as the first rise in investor activity since the turbulence that began in 2022.

The total value of homes purchased by investors topped $31.3 billion, marking a 6.6% year-over-year increase. According to the report, investor resurgence is largely fueled by the shift toward more stable, single-family homes, which now represent 68.9% of all investor purchases, up from the previous year.

The preference for single-family homes is notable, but the type of single-family homes being targeted may be the larger issue. 

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Low-priced starter homes make up nearly half investor purchases at 47.5%, Redfin said, directly contributing to the uptick in housing prices, as investors made roughly $174,616 on each home they sold in March.

That segment of homes has shown stronger potential for rental income growth and lower tenant turnover, making it increasingly attractive, the report said. Additionally, the rise in single-family home investments has led to a portion of the market — 18.4% of such homes sold in the first quarter were to investors, the highest since mid-2022.

Geographically, the resurgence of investor activity has been uneven.

While California has seen growth, some traditionally affordable markets have seen declines. For example, Redfin noted that investor purchases in Cincinnati plummeted by 22.1% from a year earlier, marking the biggest drop among the metros analyzed.
 
In San Jose, investor purchases skyrocketed by 27.8% year-over-year in the first quarter, leading the charge among U.S. metropolitan areas. Oakland followed closely with a 22% increase, Redfin said.

Parts of the East Coast saw declines as well, with activity in Baltimore and Providence, Rhode Island, falling 22% and 20.2%, respectively.

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