Homes purchased by real estate investors saw their largest annual decline on record in the first quarter of the year amid falling home values and high mortgage rates, according to a report released on Wednesday.
Investor purchases fell by close to 50 percent compared to last year, outpacing the overall decline in sales, the report from real estate brokerage Redfin showed. Overall, investors purchased 18 percent of homes sold in the first quarter.
But despite their declining share, investors’ presence in the market can still create difficulties for buyers at a time when housing stock remains low and prices are high, Redfin Senior Economist Sheharyar Bokhari said.
“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,” Bokhari added.
Investors, alongside many others during the pandemic, seized on historically low mortgage rates to scoop up properties.
Now they are pulling back given volatile mortgage rates driven by the Federal Reserve’s fight with inflation that has significantly increased borrowing costs.
Redfin’s data shows that investors purchased $27.5 billion worth of homes in the metros the company tracked in the first quarter. This is down by 46.3 percent from $51.2 billion a year ago.
The cost of the typical home purchased by investors was $427,901.
About a quarter of low-cost homes for sale in the metros tracked by Redfin were bought by investors, and close to half the homes they purchased overall in the first quarter were low-cost — the highest share in two years.
More than 41 percent of homes purchased by investors in the first quarter of the year were starter homes.
The company defined an investor as any buyer whose name includes keywords such as LLC, Inc, Trust, Corp, Homes. Investors were also defined as any buyer whose ownership code on a purchasing deed includes at least one of the following keywords: association, corporate trustee, company, joint venture, corporate trust, the company said.
Redfin noted the data could also include purchases made through a family trust for personal use.