Investor Purchases of SFRs Are Down 49%

One big story over the last few years — really, since the global financial crisis — has been the degree to which investors had been snapping up single-family homes and renting them out.

That narrative just ran into a boulder and tripped. In the first quarter, investor home purchases dropped 49% year over year and 15.9% down from 2022 Q4, according to Redfin. The fall was even harder than the overall year-over-year 41% and quarterly 14.7% quarter-over-quarter for home purchases.

The analysis was of county records from 40 of the most populous metropolitan areas, the company said. “We define an investor as any institution or business that purchases residential real estate,” Redfin wrote. “When we refer to a ‘record,’ the record dates back to the first quarter of 2000. This data is subject to revision.”

Investor purchases of houses in the first quarter of 2022 were at a record high, making a larger fall more likely. “Investors bought 41,181 homes in the metros tracked by Redfin in the first quarter of 2023, down from 80,128 a year earlier, which wasn’t far from the record high of 95,124 in the third quarter of 2021,” the report said.

As was true in other areas of CRE, rising interest rates matched to declining rents or rent growth and falling housing values reduced profits. It could be that some deals wouldn’t pencil. Although buyers often pay cash, they still take out loans for other expenses like renovations. The potential of a recession also causes more conservative practices.

Investors focused on lower-priced properties, with 40% of purchases being classified as starter homes. The emphasis on such properties has already been in play. In 2022, it was clear, according to a National Association of Realtors study, that the median prices institutional investors paid were 26% lower than the median prices in the same states.

However, a lower overall number still indicates advancing interest in single-family houses. Investors bought 17.6% of all homes, which is off from the 20.4% of a year earlier but is still “higher than any quarter on record prior to the pandemic.”

“While investors have pumped the brakes on home purchases, they’re still scooping up a bigger share of homes than they were before the pandemic, which can create challenges for individual buyers at a time when there are so few homes for sale,” the report quoted Redfin Senior Economist Sheharyar Bokhari as saying. “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.”

The biggest reductions in purchases were in Nassau County, NY (-67.9%); Atlanta (-66%); Charlotte, NC (-66%); Phoenix (-64.2%); Nashville (-60.4%). Las Vegas, Jacksonville, Philadelphia, Tampa, and Orlando all saw declines of more than 50%.

About 13.5% of investors who sold homes during the period did so for less than they purchased the property. For house flippers, the portion was 20.8%.