• Home purchases by investors in the United States fell 30.2% year over year in the third quarter.
  • Investor buying plummeted in so-called pandemic boomtowns, including Phoenix and Las Vegas.
  • The typical home purchased by investors cost $451,975, up 6.4% from a year earlier but down from the second quarter.

Investor home purchases fell sharply in the third quarter of 2022, underscoring the rapid cooling in activity that has swept through the US housing market.

Home purchases by investors fell 30.2% year-over-year nationally, the biggest drop since the COVID pandemic began two years ago, real estate broker Redfin said in a report on Tuesday. The drop topped a 27.4% drop in overall home purchases.

Phoenix, Las Vegas and other so-called pandemic boomtowns that have drawn dozens of out-of-town homebuyers have seen sharp sales declines. Meanwhile, investors’ purchases of high- and mid-priced homes fell more than those of low-priced homes in the July-September period.

The potential for substantial declines in home prices puts investors at risk of losing money, fueling their pullback in purchases, Redfin said. U.S. house prices rose 3% year-over-year, the slowest annual growth since 2020.

“Investors are unlikely to return to the market in any significant way any time soon. House prices would have to fall significantly for that to happen,” said Sheharyar Bokhari, senior economist at Redfin, in the report. “It means regular buyers who are still in the market no longer face fierce competition from hordes of cash-rich investors like they did last year.”

The housing market as a whole has been hit by rising mortgage rates, with borrowing costs rising as the Federal Reserve raises rates to combat inflation levels. This year, mortgage rates topped 7% for the first time in 20 years, but declined somewhat to around 6.6%. Mortgage rates for investment properties can be at least 50 basis points higher than rates for a principal residence, LendingTree said last year.

Slowing rental growth is making it harder for landlord investors to earn significant returns, Redfin said.

Investors lost market share for the second consecutive quarter buying about 17.5% of all homes purchased. These purchase rates were higher in the second quarter and a year ago, at 19.5% and 18.2%, respectively, but were still up from 15% before the pandemic.

Redfin said the typical home purchased by investors in the third quarter cost $451,975, up 6.4% from a year earlier but down 4.3% from the previous quarter.

Investor home purchases rose in just five of the metros analyzed by the company, with the East Coast market performing the best regionally. Purchases jumped 46.4% in Philadelphia year-over-year and 11.2% in New York.

Phoenix and Las Vegas saw declines of 49.4% and 44.8%, respectively, in investor-driven buying over the past year. Shopping in Portland, Oregon fell 47.4%.

In dollar terms, investors in the quarter bought $42.4 billion worth of homes, down 26.3% from $57.6 billion a year ago and 30.5% from to $61 billion a quarter earlier.

Investor purchases of high-priced homes fell 35.7%, higher than the 20% drop in low-priced homes.

A chart from Redfin shows the decline in home purchases by investors from 2020 to the third quarter of 2022.

A chart from Redfin shows the decline in home purchases by investors from 2020 to the third quarter of 2022.

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