DSNews delivers stories, ideas, links, companies, people, events, and videos impacting the mortgage default servicing industry.
Issue link: http://digital.dsnews.com/i/1501024
MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 78 J O U R N A L June 2023 INVESTOR HOME PURCHASES FELL A RECORD 49% YOY IN Q1 A s elevated interest rates, declining rents and housing values ate into potential profits for many, new data revealed real estate investors purchased 48.6% fewer homes in Q1 of 2023 than they did a year earlier, according to the latest market report from Redfin. That's the largest annual decline on record, and outpaced the 40.7% drop in overall home purchases in the 40 major metros analyzed. Investor purchases fell 15.9% on a quarter-over-quarter basis, comparable with the 14.7% quarterly drop in overall home purchases. "While investors have pumped the brakes on home purchases, they're still scooping up a bigger share of homes than they were before the pandemic, which can create chal- lenges for individual buyers at a time when there are so few homes for sale," said Redfin Senior Economist Sheharyar Bokhari. "Inves- tors have gravitated toward more affordable properties due to still-high housing costs and rising mortgage rates, which has left first- time homebuyers with fewer starter homes to choose from." Investors bought up a large number of homes during the pandemic because record-low mortgage rates and skyrocketing housing demand created opportunities for strong returns. Now they're pulling back in response to the rise in interest rates, which is causing housing values to continue falling in much of the U.S. as homebuyer demand falters. While many investors purchase homes with cash, they're still impacted by high interest rates because they often take out non-mortgage loans to cover renovations and other expenses. "It's been about eight months since one of my listings sold to an investor," said Jacksonville, Florida Redfin Premier real estate agent Heather Kruayai. "I rarely get offers from investors these days, and when I do, it's a lowball offer on a house that's been sitting for a while. Some smaller companies and mom-and-pop investors are still active in the market, but the big corporations aren't buying anymore." Borrowing costs climbed even higher in May, meaning investors may pull back from the housing market further in Q2. Investor home purchases typically rise on a quar- ter-over-quarter basis in the spring, but they may fall flat or decline when second-quarter data comes in. For investors who are landlords, slowing rent growth is also making it harder to reap profits. Meanwhile, investors who are in the business of flipping homes are finding it more challenging to make money because they're increasingly likely to resell homes at a loss due to declining home prices. Roughly one of every seven homes (13.5%) sold by an investor in March sold for less than the in- vestor bought it for, just shy of the seven-year high set in February. The share was even higher—20.8%—for home flippers. Investor home purchases in Q1 of 2022 were near their record high, which is another reason the year-over-year decline in 2023 was so substantial. Investors bought 41,181 homes in the metros tracked by Redfin in Q1 of 2023, down from 80,128 a year earlier, which wasn't far from the record high of 95,124 in Q3 of 2021. Overall, investors bought $27.5 billion worth of homes in the metros tracked by Redfin in Q1, down 46.3% from $51.2 billion one year earlier and down 12.4% from $31.4 billion one quarter earlier. The typical home investors purchased cost $427,901, which means little changed from the prior quarter and a year earlier. Investors bought 18% of homes pur- chased in Q1 While investors are purchasing fewer homes than they were before the pandemic, their market share remains relatively high; they bought 17.6% of homes purchased in the metros tracked by Redfin in Q1. That's down from a peak of 20.4% a year earlier but higher than any quarter on record prior to the pandemic. Investor market share is likely above pre-pandemic levels in part because so many individual homebuyers have been priced out of the market, Bokhari said. For it to come down substantially, investors would need to pull back much more than regular buyers; right now, both groups are retreating rapidly from the market. Investors lost most market share in Charlotte, Atlanta, and Phoenix Investors lost market share in 17 of the 40 metros Redfin analyzed. Many of those are places where investor purchases dropped