Real estate investor home purchases slump
Real estate investors are pulling back from the US housing market as high borrowing costs, slowing demand, and economic uncertainty take a toll.
Redfin reported that investors purchased 47,004 homes in Q4 2024, the lowest fourth-quarter total since 2016 and a 3.9% decline from a year earlier – the biggest annual drop in investor purchases in a year.
After years of aggressive buying, investors are now taking a step back due to several key factors, including rising home prices, lackluster rental market conditions, and concerns over the broader economy.
While investor purchases have slowed, they still accounted for 17.1% of all US home sales in Q4, down from 19% the previous year, marking the lowest investor share since 2020.
The housing market as a whole has been struggling under high mortgage rates and affordability challenges, leading to fewer sales across the board. Pending home sales fell to their lowest level on record in January, aside from the early pandemic months. Investors, like traditional homebuyers, are feeling the strain.
Investors are quiet because they’re not seeing the rate of return they were two or three years ago, according to Redfin agents in some markets. In some cases, investors are worried about having to sell at a loss if market conditions worsen.
Another major factor is the slowdown in home-price appreciation. While prices remain high, they are no longer rising at the pace seen during the pandemic boom, making house flipping and rental investments less lucrative. At the same time, rents have plateaued following a surge in apartment construction, further reducing profit margins for investors looking to hold properties long-term.
Elevated mortgage rates remain a challenge, even for investors. While the majority (65%) of investor purchases are made in cash, many investors still rely on financing for property flips and other costs, making today’s higher borrowing costs a deterrent to aggressive buying.
Condo investments hit hardest
Investor purchases of condos saw the biggest decline, dropping 13% year over year, the lowest Q4 total since 2012. The slowdown was most pronounced in Florida, where rising HOA fees, climate risks, and insurance costs have driven up the cost of condo ownership.
Investor purchases of single-family homes, which make up the majority of investor activity, fell 1.6% year over year, while townhouse purchases dropped 6.1%. Multifamily purchases, however, increased by 2.9%, reaching their highest share since 2019, indicating a slight shift toward rental-focused investments.
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While the overall number of investor purchases is down, there is still activity in the lower price tiers.
Purchases of low-priced homes remained steady, with nearly 47.3% of investor purchases falling into this category. Purchases of mid-priced homes dropped 11.2%, while high-end home purchases declined 3.5%.
Investors are favoring cheaper properties for the same reasons as traditional buyers: they are more affordable to acquire and easier to rent out. However, even in the affordable segment, investor market share has declined across all price tiers.
Investors ditch homebuilder stocks
The pullback in investor activity extends beyond direct real estate purchases. Investor confidence in homebuilders is also fading, with homebuilder stocks seeing record sell-offs.
Bloomberg reported that the home construction sector is one of the worst-performing in the S&P 500 Index, plunging 24% since President Donald Trump’s election victory. The iShares US Home Construction ETF is on track to post its largest-ever monthly outflow as investors react to rising borrowing costs and weak earnings reports from major builders like Toll Brothers Inc.
Confidence among homebuilders dropped to a five-month low in February, and US housing starts declined in January, further signaling weakness in the sector.
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