U.S. real estate investors purchased 47,004 homes in the fourth quarter—the lowest level for that time of year since 2016—according to a new report from Redfin That’s down 3.9% from a year earlier, the biggest decline in a year.
The decline in investor activity can be attributed to multiple factors:
- Slowing housing market. Investors are buying fewer homes for some of the same reasons other people are buying fewer homes: High home prices and high mortgage rates. Overall pending U.S. home sales fell to their lowest level on record in January, aside from the start of the pandemic.
- Tepid demand. Home-price growth has started to slow, inventory has started to rise, and homebuying demand is lackluster. That makes some investors cautious about buying real estate to flip it and try to earn a profit. Rents have also plateaued after a boom in apartment construction, meaning it’s less lucrative than it used to be for investors to purchase units to rent out.
- Economic uncertainty. Real estate investments are riskier than before, with economic and political uncertainty in the air. Recession nerves, the transition to a new presidential administration, and instability surrounding key economic measures like inflation, tariffs and jobs have made some investors pull back on housing. They may be shifting to other investments that are viewed as more stable, like bonds.
- Elevated interest rates. The Fed has kept interest rates high. That means mortgage rates remain high, making it more expensive for investors who are taking out a loan to buy homes. Investors are less sensitive to mortgage rates than regular homebuyers because most investors (65%) pay in cash, but they’re still somewhat sensitive because they often take out different types of loans to cover home-flipping costs and other expenses.
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Investors are silent, according to Redfin agents in some regions of the nation, because they aren’t seeing the same rate of return as they did two or three years ago. Investors may even be concerned about having to sell at a loss in some situations.
In Q4, investors bought properties totaling $36.5 billion in dollars. That is equivalent to the 6.3% annual increase in home-sale prices throughout that time frame.
Although there is a decline in investor purchases, it is not happening nearly as quickly as it did in late 2022 and early 2023. Rapidly increasing mortgage rates at the time were slowing down the desire for home purchases, making it more costly to buy a property and less desirable to flip one.
Additionally, the proportion of overall property purchases made by investors is lower than it typically is at the end of the year.
In the fourth quarter, 17.1% of U.S. homes sold were bought by real estate investors, which is the lowest percentage for that time of year since 2020 and down from 19% the previous year. Because they slowed down purchases more quickly than typical homebuyers, investors lost market share.
Similar to the previous year, 10% of all home listings in December came from investors.
Florida accounted for three of the five metro areas where investor purchases fell the highest during the fourth quarter. More than any other large U.S. city, Orlando, Florida had a 27.5% year-over-year decline in investor acquisitions. Chicago (-23.3%), Miami (-21.3%), Atlanta (-18.4%), and West Palm Beach, Florida (-14.5%) are next in line.
Florida also saw the biggest decline in investor market share. The largest decline of any metro was seen in Orlando, where investors bought 20.7% of properties that sold in the fourth quarter, down from 26.6% a year earlier. Similar declines were seen in Jacksonville, Florida, where investors purchased 21.1% of sold properties, down from 25.8%. Atlanta, Riverside, California, and Charlotte, North Carolina, saw the next-largest drops.
To read the full report, click here.
