U.S. real estate investors seem to be hitting pause. Their home purchases fell 2.3% in the third quarter compared with a year earlier. In 2021 investor activity rose 144% during a housing boom but dropped 47% in 2022 as the market cooled.
According to Redfin’s analysis of home purchase records from 39 major U.S. cities, investor activity has returned to levels seen before the pandemic—around 50,000 homes per quarter. That’s far below the nearly 100,000 homes bought quarterly at the peak of the 2021 frenzy.
All told, investors spent $38.8 billion on homes in the third quarter, a 3.4% hike from last year, reflecting a similar increase in home prices.
Still, there’s more to the story. Investors made up 8.3% of home listings in September, slightly down from last year but still above pre-pandemic levels. The market has settled into a middle ground: neither the record-breaking highs of 2021 nor the vertiginous plunges of 2022.
Experts say investors are adjusting to a new reality. The big profits from flipping and renting homes during the pandemic have faded with elevated mortgage rates and weaker demand making deals less attractive. However, conditions are better than last year when soaring costs kept many out of the market.
What’s Behind the Cooling Housing Market?
The surge of investor activity in the housing market is cooling down, returning to levels seen before the pandemic. Here’s what’s behind the shift:
Profits are shrinking but still attractive. Investors flipping homes are making smaller gains with the average October sale bringing 55% more than the purchase price, down from 64% a year ago. High home prices and loan costs are cutting into profits, but they’re still better than pre-pandemic times when gains averaged 45%. Only 7% of flipped homes sold at a loss in October, compared with the usual 10% before the pandemic.
The rental market is slowing but demand remains strong. A wave of new apartments is keeping rent increases in check, making rental property investments less profitable. Still, more people are renting because buying a home has become too expensive. Renter households are growing three times faster than homeowner households. Although rents have leveled off nationally, they remain much higher than pre-pandemic levels with higher growth on the East Coast and in the Midwest.
Investors are buying fewer homes. In the third quarter, investors purchased 15.9% of homes sold, the lowest share in four years and down from 16.2% last year. Their market share is now close to pre-pandemic levels, around 14% in 2018 and 2019. That is a big drop from the 20.9% peak in early 2022 when low mortgage rates drove a buying spree.
Unexpected Cities Are Emerging as Hotspots
The real estate market is undergoing a turnaround. The old favorites are losing their shine as unlikely cities like Las Vegas are rising fast.
Florida’s fall from grace. Investor purchases in Fort Lauderdale plunged 23.8% year over year, the sharpest decline nationwide, with Miami close behind at 19.4%. The Sunshine State is losing its appeal. Intensifying natural disasters, skyrocketing insurance premiums and relentless HOA fees are turning Florida’s dream homes into financial nightmares. Investors, like many residents, are rethinking their bets on paradise.
Las Vegas heats up. Contrasting Florida’s woes, Las Vegas saw investor purchases edge up 27.6%, leading the country. Seattle and San Jose followed with gains of 21.8% and 19.5%. Those metros are drawing investor interest thanks to soaring rental demand and relatively stable local economies.
Condos lose their popularity. Investor purchases of condos tumbled 11.4%, the steepest drop in a year, with Miami’s condo market bearing the brunt. Investor interest in condos has dwindled nationwide, likely influenced by Florida’s downturn, where condos once dominated investors’ psyche.
The single-family reign. Single-family homes remain king, making up nearly 70% of all investor purchases in the third quarter, an increase from last year. Condos, by contrast, slid to 18.2% of investor buys, down from 20.1%. Multifamily properties and townhouses held steady, each making up minor shares of the investor pie.
Market share changes. Investors bought 16% of U.S. condos sold in the third quarter, the lowest share in three years, but the declines across other property types were less pronounced. Single-family homes, multifamily properties and townhouses saw investor market shares remain virtually unchanged year over year.
The Appeal of Affordable Homes
In a market defined by rising costs and cautious decision-making, low-priced homes have become the clear favorite for investors. Nearly half (45.7%) of investor purchases in the third quarter were in the low-price range, showing that affordability still holds strong appeal. Here’s why.
Dependable. Low-priced homes are popular because they’re affordable and attract many buyers and renters. For investors, they offer a safe bet in an unpredictable market. Whether selling or renting, these properties have reliable demand and lower risks.
Less interest in expensive homes. Investors are buying fewer high-priced homes with purchases dropping 5.2% compared with last year. Mid-priced homes recorded a smaller slump of 3%. Meanwhile, low-priced homes stayed the same.
Stable market share. Investors bought 22.9% of low-priced homes in the third quarter, the same as last year. High-priced and mid-priced homes had smaller shares at 14% and 11.3%, showing a shift toward more cautious buying.
Low-priced homes aren’t just attractive because they’re cheap. Rather, they’re a practical choice in a market with slimmer profit margins and stable rents. These properties also help investors weather market volatility.
