Investor homebuyers are still splurging but their market share shrunk

Investors continue to use their deep pockets to scoop up single-family homes as rising mortgage rates dampen homebuyer demand.

Those buyers, made up of institutions and other businesses, bought 19.4% of homes sold during the second quarter, according to Redfin. They purchased 11% more homes than in the previous quarter, with 87,500 properties totalling $60.1 billion.

The splurge however breaks a nearly two-year streak of increasing shares of homes purchased per quarter, Redfin said, which topped out at 20.1% of homes available in the first quarter. They also purchased fewer homes than the record 93,700 they bought in the third quarter last year, possibly because of the record $474K average they're paying now per home.

Investors pay cash in approximately three-quarters of purchases and are largely immune to mortgage rates which almost hit 6% in late June. As of Thursday, the 30-year fixed-rate mortgage sat at 5.13% according to Freddie Mac, wavering as the market responds to inflation concerns.

Homebuyers are also contending with inventory up 31% from the same time last year and a median listing price in July of $449K, below an all-time mark reached in June. 

"Investors will be less of a roadblock for regular buyers as the housing-market slowdown reduces competition," said Sheharyar Bokhari, Redfin senior economist, in a press release. "Investors and individual buyers who can afford to purchase homes have a leg up because other prospective buyers have been priced out."

As their purchases plateau, investors aren't facing some of the heat they felt at the beginning of the year, when U.S. senators publicly blamed them for the nation's tight housing market. 

Investor purchases still remain elevated above pre-pandemic levels, when they accounted for approximately 15% of the market share and around 60,000 homes sold per quarter in 2019.  The industry however has since turned some of its attention away from investor impact on homebuyers to declining origination volumes, inflation and rising interest rates from the Federal Reserve. 

Sellers are also beginning to reject investor offers as the market slows down, said Heather Kruayai, a Redfin agent in Jacksonville. 

"Some sellers are starting to reject investor offers because they simply aren't very strong and often come with long inspection periods," she said in a press release. "They don't want to risk an investor backing out during the inspection and lose other potential buyers."

Jacksonville is the most popular metro for investors, where they accounted for 31.9% of homes sold in the second quarter, followed by Atlanta (31.8%), Las Vegas (31.5%) and Phoenix (31.2%). Unpopular metros for investors include Seattle, Washington, D.C. and Providence, Rhode Island, where institutional buyers accounted for just 7.3% of the market share between April and June.