According to a report from Redfin, investor home purchases have dropped by 45% in the second quarter of this year compared to the previous year. This decline in investor activity is higher than the overall drop in home sales, which stands at 31%. Investors have been more reactive to the cooling housing market than individual homebuyers, as they were quick to retreat once the market started to slow down.
Several factors have contributed to the decline in home sales. Firstly, interest rates have increased, with the Federal Reserve raising the federal funds rate multiple times between March 2022 and July 2023. This resulted in higher mortgage rates, reaching a 21-year record of 7.23% for a 30-year mortgage. Secondly, homeowners and investors who locked in record low rates during 2021 and 2022 have less incentive to sell their properties at the moment. Additionally, housing supply has dried up, with total listings falling by 9.1% year over year in July 2023.
During the pandemic, investors took advantage of low interest rates, contributing to a housing boom. However, this trend has reversed, with investor purchases declining for four consecutive quarters since the second quarter of 2022. This decline represents the second-largest drop in purchases since the 2008 recession.
Despite the overall decline in investor purchases, those who engage in home flipping are still making profits. However, they are putting fewer homes on the market than in previous years. According to Redfin Senior Economist Sheharyar Bokhari, flippers are not likely to replenish the housing market with newly renovated homes anytime soon.
In summary, the cooling housing market has led to a significant drop in investor home purchases. Factors such as rising interest rates, limited housing supply, and reluctance among investors to sell have contributed to this decline. While home flippers are still making money, they are putting fewer homes on the market, which may impact housing inventory in the future.
– Redfin report