Real estate investors pull back on home buying in Q3

Investors are scaling back on residential property purchases compared to a year ago, with buying activity returning to pre-pandemic levels, a report found.

Real estate investors bought 2.4% fewer homes in the third quarter than during the same period in 2023, according to Redfin. This drop occurred even though interest rates were higher at that time than they are now.

Part of the scaleback stems from the fact that reselling properties is becoming less profitable, and buying rental properties is less attractive due to an oversupply of leased houses on the market, Redfin asserted.

In the third quarter, investors bought 49,380 homes, worth about $38.8 billion, down from 50,535 homes a year earlier. These purchases made up 15.9% of all homes sold, a slight decrease from 16.8% a year ago and the lowest share since late 2020. The figure is in line with 2018 and 2019, when investors bought about 14% of homes sold.

The slowdown of purchases, despite being small, is notable because "it comes after four years of huge swings driven by the wild pandemic-era housing market," the real estate brokerage said.

"Investors are finding a balance after several years of whiplash: They bought up homes at a frenzied pace in 2021 and the beginning of 2022, then quickly backed off when the housing market slowed as mortgage rates rose," said Sheharyar Bokhari, senior economist at Redfin, in a press release.

"Now there's a middle ground. It's less appealing to buy homes to flip or rent out than it was at the start of the pandemic, when demand from both homebuyers and renters was robust. But it's more appealing than it was last year, when soaring home prices and borrowing costs put a big damper on demand," he added Friday.

Although the amount of money flowing into the housing market is stabilizing nationwide, some areas saw declines in activity, while others experienced spikes in buying interest.

Investor purchases dropped the most in Fort Lauderdale, Florida, falling 23.8% year-over-year. Newark, New Jersey, and Miami followed, both posting declines of 19.4%. Redfin suggests that investors are becoming more cautious in Florida due to the rising risk of natural disasters and soaring home insurance.

The decline in investor activity in Florida is partly responsible for a nationwide drop in condo purchases, according to the real estate brokerage's report. Investor purchases of condos fell 11.4% year-over-year in the third quarter, with Miami typically recording the highest number of condo sales among major U.S. metros.

In contrast, Las Vegas saw a 27.6% increase in investor purchases year-over-year in the third quarter. Seattle and San Jose, California, also saw gains, with increases of 21.8% and 19.5%, respectively.