June 13, 2024

High Home Prices and Mortgage Rates Put More U.S. Real Estate Investors on the Sidelines in 2023

Fewer homes in the U.S. were bought by investors in the first three quarters of last year, according to a Realtor.com report.

Deterred by high prices and mortgage rates, investor purchases fell 32.9% year-to-date in September compared to the previous year. Investor purchases also fell more than overall U.S. sales, which dropped 25% year over year during the same timeframe, according to the report released Wednesday.

Realtor.com analyzed U.S. deed records from January 2000 to September 2023 to determine the number of investor sales vs. purchases nationally and in U.S. metro markets.

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From January to September, investors were behind an average 10.8% of homes sales each month, down from 12% for the same period in 2022 but still higher than pre-pandemic levels. The peak share of investor purchases was 13.1% in February 2022.

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“While widespread unaffordability hampered home-buyer activity in 2023, it cut more deeply into investor activity as investors saw less opportunity and their share of home purchases declined from the previous year’s levels,” said Hannah Jones, a Realtor.com research data analyst, in the report. “Despite investor activity falling from 2022 highs, the market remains appealing to investors, who continue to make a higher share of overall purchases than was common before the pandemic.”

Southern metropolitan areas experienced the greatest share of investor activity, at 12.1%, and the biggest year-over-year, at 2.9 percentage points. The Midwest followed, with investors accounting for 10.5% of sales, down 0.9 percentage points. The Northeast was the only region in which, on average, metros saw an increase in investor share of activity (8%, up 0.6 percentage points).

The report also showed that fewer investors presented all-cash offers, as market competitiveness continued to soften. The share of investors who paid in cash in the first three quarters was 60.2%, down from 64.3% during the same time period in 2022.

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As a result, there was a clear shift from large investors toward small investors in real estate investment transactions. The decline in cash offers created a greater opportunity for smaller investors to compete, as they are less likely than larger investors to have access to large amounts of capital. From January to September, 67.6% of investor purchases were by small investors, up from 54.1% during the same time in 2022. In 91 of the top 100 markets, small investors increased their share of investor purchases, following the national trend.

Miami was noted as being the highest-priced market on the list of areas with high investor share. With 5.9% of its listing viewership from overseas during the third quarter this might suggest that international investors are willing to pay more than the average U.S. property investor.

Mansion Global is owned by Dow Jones. Both Dow Jones and realtor.com are owned by News Corp.

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