Investors bought one in six homes sold in the second quarter of 2024: Redfin

While the US housing market may have slowed in the second quarter of the year, investors did not take their foot off the accelerator.

Home purchases by investors rose 3.4% year over year in the second quarter of 2024, the largest increase since the second quarter of 2022, according to a report published Thursday by Redfin.

By comparison, overall U.S. home purchases fell 1.9% over the same period, which Redfin attributed to higher mortgage rates and home prices. While investors are still sensitive to changes in mortgage rates, they are less sensitive than consumer buyers, as 69% of investors pay in cash.

The research is based on an analysis of county-level home purchasing records in 39 of the most populous U.S. metro areas, going back to 2000. Redfin said it defines an investor “as any institution or corporation that purchases residential real estate, meaning this report covers has on both institutional and mom-and-pop investors.”

In total, investors bought $43 billion worth of homes in the second quarter, up 13.7% year over year, which was also the biggest gain in two years.

Redfin found that investors bought 16.8% (about one in six) of homes sold in the second quarter of 2024, up from 16% a year ago. This is the highest second quarter share ever recorded, excluding 2022 (20.8%).

Redfin said second-quarter 2024 data shows investor activity is stabilizing after more than doubling during the 2021 pandemic-induced homebuying boom. It then fell by almost 50% in 2023 due to falling rents and home prices in some markets.

While demand for rental properties remains strong, rental prices are showing slow growth due to a large flow of new apartments coming onto the market, creating competition for tenants. But the start of multifamily construction has slowed, which is good news for landlords looking to raise rents.

Redfin attributes this uptick to investors disappearing from the sidelines faster than consumer buyers.

“One reason real estate investors are coming out of hibernation is to take advantage of robust renter demand,” Redfin senior economist Sheharyar Bokhari said in a statement.

“High home prices and mortgage rates have put homeownership out of reach for many Americans, driving demand for rental properties. Investors, many of whom can afford to pay cash to avoid the incentive of high mortgage rates, are cashing in on that demand.”

Additionally, the brokerage noted that the increase in investor activity is being driven by single-family home purchases, which rose 6.7% annually through the second quarter of 2024. In contrast, investor purchases of multifamily properties (two to four units); condominiums and cooperatives; and townhouses fell by 5%, 3.3% and 1.9% respectively.

Overall, single-family homes represented 69.4% of all investor purchases in the second quarter of 2023, the highest share since mid-2022. Condos and co-ops accounted for 19.4%, followed by townhouses (6.5%) and multifamily properties (4. 7%).

Redfin noted that investors typically prefer single-family homes because this segment of the market has relatively strong rental growth and lower tenant turnover.

Supporting this data is a recent report from the Association of Mortgage Bankers (MBA), which showed multifamily lending fell 49% to $246 billion in 2023.

“Multifamily lending is down by about half in 2023 as sales transactions declined and far fewer property owners sought to refinance their loans,” Jamie Woodwell, MBA’s head of commercial real estate research, said in a statement.

When it comes to return on investment (ROI), Redfin reported that the typical home sold by an investor in June sold for 58% more than the investor bought it for, down from 62.1% a year earlier, but still above pre-pandemic levels. Only 5% of homes sold by investors suffered a loss, compared to 5.8% in the second quarter of 2023 and below pre-pandemic levels.

This can be at least partially attributed to the fact that investors bought 24.1% of low-priced homes sold in the second quarter of 2024, up from 22.7% a year earlier. By comparison: 14.7% of the more expensive homes and 12.1% of the homes sold in the middle segment were purchased by investors.

Low-priced properties – which Redfin describes as properties priced in the bottom third of the local market – represented 45.2% of all home purchases by investors in the second quarter. High-priced homes and mid-priced homes accounted for shares of 30.9% and 23.9%, respectively.

Of the individual markets analyzed, San Jose and Las Vegas saw the largest annual increase in investor home purchases (+27%). Three other California metros – Sacramento (+18.9%), Los Angeles (+17.9%) and San Francisco (+17.8%) – rounded out the top five.

The San Jose metro area also saw the largest overall increase in home purchases in the second quarter of 2024, up 15.2% year-over-year, while the San Francisco metro area saw the largest year-over-year increase in investor ROI on sold property in June. The typical San Francisco home sold by an investor cost $685,500 more than the initial purchase price, a 50.7% increase from a year earlier.

“San Jose has a lot of foreign investors who buy sight unseen, and a lot of house flippers who buy up dilapidated houses, put some lipstick on them and sell them for a profit,” said Craig Pellegrini, an agent with Redfin Premier in San Jose. , the report said.

“I also see parents buying a second home that they want to rent out for a while and then pass on to their children, some of whom have just graduated and can’t afford to buy it themselves. There are a lot of people with tech money who bought homes here in the early 2000s, built up a ton of equity, and are now taking on a side job as a real estate investor. But there are also people who rent in neighborhoods like Mountain View and Los Altos, and then buy investment properties in San Jose – where home prices are lower – to build equity.”

At the other end of the spectrum, investor home purchases fell the most year over year in Fort Lauderdale, Florida (-15.9%); Providence, Rhode Island (-12.4%); New Brunswick, New Jersey (-11.9%); Miami (-11.3%); and Chicago (-11.1%).

“While rents here are high, insurance rates and property taxes are also high, making it difficult for investors to understand the numbers,” Bob Benson, an agent with Redfin Premier in Fort Lauderdale, said in the report.

Miami markets (28.5%); San Diego (23.7%); Anaheim, California (23.3%); Las Vegas (22.3%); and Los Angeles (22.2%) had the highest share of home purchases by investors in the second quarter of 2024. Conversely, Providence, Rhode Island (8.5%); Washington, DC (8.7%); Warren, Mich. (9.2%); Montgomery County, PA (9.5%); and Seattle (9.7%) had the smallest shares.