Investor exodus from pandemic boom markets powers drop overall

Activity in the housing market fell across the board in the third quarter, including among investors in the continued fall from their pandemic buying frenzy.

Investor purchases fell 29.7 percent year-over-year in the period covering July through September, according to a report from Redfin. The drop is modest compared to the year-over-year declines in the first and second quarters, but still outpaced the 22.2 percent decline in the overall housing market last quarter.

The total of nearly 49,000 purchases by investors last quarter was the lowest in a third quarter since 2016.

Investor market share remains on the decline. Of the homes purchased in the third quarter, 15.9 percent were snapped up by investors, a decline of nearly 2 percentage points year-over-year.

The quarter told the same old story for investors and individuals alike. Mortgage rates and home prices are high, while inventory is low. Even though investors are likely to pay in cash — that’s how 71 percent of their third-quarter deals went down — borrowing rates still hurt their ability to deal with other costs of ownership and renovation.

Starter homes remain the apple of investors’ eyes, accounting for 38.9 percent of their purchases in the third quarter. The investors’ share of starter home purchases — defined as properties at or less than 1,400 square feet — was only a bit off their all-time mark, which came in the first quarter.

Investor purchases dropped by more than 41 percent year-over-year in seven markets, led by a 49.7 percent fall in Atlanta. Other Sun Belt markets also felt the sting of the investor withdrawal, including Charlotte, Jacksonville, Phoenix and Las Vegas.

Investor purchases declined year-over-year in every metro analyzed by Redfin. The only place where their buys declined by fewer than 5 percent annually was Montgomery County, Pennsylvania, which felt a mere 0.7 percent drop.

Investor market share did increase in some markets, despite the overall decline in their purchases. Investor share jumped the most in Oakland, where it rose 2.5 percentage points year-over-year. New York, Newark and New Brunswick also saw gains of at least 1 percentage point.

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Despite the small gains, Redfin senior economist Sheharyar Bokhari said investors aren’t likely to return anytime soon. 

“Borrowing costs are unlikely to fall significantly in the near future, and while home prices may soften a bit, they probably won’t cool enough to bring back a critical mass,” Bokhari said.