An apartment under construction in Atlanta, Georgia on Sunday, November 13, 2022.
Elijah Nouvelage | Bloomberg | Getty Images
Sale of houses have fallen for nine months in a rowfueled by a surge in mortgage interest rates, and now investors are pulling back even more than traditional home buyers.
Investor home purchases fell just over 30% in the third quarter of this year compared to the same period last year, according to real estate brokerage Redfin. That’s the biggest drop in investor sales since the Great Recession a decade ago, barring a very brief stop during the first two months of the Covid-19 pandemic in 2020.
The decline in investor sales outpaced the decline in overall home purchases, which fell roughly 27% in the third quarter. Investors’ share of the overall market also fell to 17.5% of all sales from 18.2% a year ago. However, the share is still slightly higher than the 15% share before the pandemic.
“Investors are unlikely to return to the market in a big way anytime soon. Home prices would have to fall significantly for that to happen,” said Sheharyar Bokhari, chief economist at Redfin. “This means regular buyers who are still in the market will no longer face stiff competition from hordes of cash-rich investors as they did last year.”
Non-investors face much higher mortgage rates and a shortage of affordable homes for sale. Investors tend to use cash more often than traditional buyers, so they are not as affected by mortgage rates. However, they are affected by house prices that are weakening.
Home prices are still higher than a year ago, but annual gains are shrinking at an unprecedented rate. The S&P CoreLogic Case-Shiller National Home Price Index rose 13% in August, the most recent reading, but that was down from a 15.6% annual gain in July.
“The -2.6% difference between the two monthly rates of change is the largest deceleration in the index’s history (with July’s deceleration now the second largest),” said Craig Lazzara, managing director of S&P DJI. “Furthermore, price growth slowed in each of our 20 cities. These data clearly show that the rate of house price growth peaked in spring 2022 and has been declining since then.”
However, investors who are still in the market are still paying higher prices than last year. The typical home purchased by an investor in the third quarter cost $451,975, up 6.4% from a year ago but down 4.3% from the second quarter.
Regionally, the markets that saw the biggest declines in investor activity were Phoenix, Arizona, Portland, Oregon, Sacramento, California and Atlanta, Georgia. All of these were some of the hottest pandemic markets, which are now seeing the steepest declines in overall sales. Miami also saw a huge drop in investors, suggesting that even the massive push on the Sun Belt is finally easing.