Real Estate Investors Retreat from Market Amid Rising Rates and Home Price Declines
Home purchases made by real estate investors dropped 45.8% on an annual basis in the fourth quarter, according to a report from Redfin, the steepest decline since analysis of the data began in early 2000. This drastic change in investor activity was driven by rising mortgage rates, which made purchasing a home more expensive, and the prospect of substantial home price declines.
U.S. homes were worth a total of $45.3 trillion at the end of 2022, a decrease of 4.9% ($2.3 trillion) from the prior record of $47.7 trillion in June.[0] The drop in percentage terms from June to December was the biggest since 2008.[1]
“It’s possible that investors will start to wade back into the market this year given that mortgage rates have ticked down from their 2022 high—especially if home prices show signs of bottoming,” said Redfin Senior Economist Sheharyar Bokhari in the report.[2] It is improbable that investors will come back with the same enthusiasm as they did in 2021. This is beneficial for individual buyers, who are still dealing with costly housing costs but no longer have to compete with investors in numerous bidding battles.[3]
Opportunity Zone markets, which are targeted for redevelopment, were withstanding the national market retreat better than other neighborhoods, just as they outperformed nationwide increases by some measures during the boom period.[4] According to ATTOM's recently published Q4 2022 Opportunity Zones Report, median single-family home and condo prices decreased in 56% of the qualified zones nationally, with at least a 5% drop observed in nearly half of them.[5]
In December, according to a report from Redfin, a technology-powered real estate brokerage, almost one third (31.2%) of home purchases were paid for in full with cash.[6] In San Francisco, the decrease in values has been greater than in any other place, as the city used to be an emblem of the expensive life in coastal cities.[7] In December, the collective value of the housing market in that area dropped by 6.7% ($37.3 billion) from the previous year to $517.5 billion, which was a larger decrease in percentage terms than any other major metropolitan area in the U.S., according to Redfin.[7]
In conclusion, real estate investors pulled out of the market due to high mortgage rates and the possibility of declining home prices.
0. “Real estate: US homeowners have lost $2.3 trillion since June: Redfin data” Yahoo News, 22 Feb. 2023, https://news.yahoo.com/real-estate-us-homeowners-have-lost-23-trillion-since-june-redfin-data-194008081.html
1. “Where home prices in the US are falling and rising the most” Quartz, 23 Feb. 2023, https://qz.com/home-prices-us-falling-bay-area-florida-rising-1850148821
2. “Investor purchases fell by record amounts at end of 2022” National Mortgage News, 15 Feb. 2023, https://www.nationalmortgagenews.com/news/investor-purchases-fell-by-record-amounts-at-end-of-2022
3. “Real Estate Investors Are Retreating — Here's Where the Typical Person Has a Better Chance to Buy Now” MarketBeat, 23 Feb. 2023, https://www.marketbeat.com/articles/real-estate-investors-are-retreating–heres-where-the-typical-person-has-a-better-chance-to-buy-now-2023-02-23
4. “ATTOM Report Uncovers Continued Strength of Opportunity Zone Markets” Mortgageorb, 16 Feb. 2023, https://mortgageorb.com/attom-report-uncovers-continued-strength-of-opportunity-zone-markets
5. “Top 10 Opportunity Zones with Lowest Median Home Prices” ATTOM Data Solutions, 17 Feb. 2023, https://www.attomdata.com/news/market-trends/figuresfriday/top-10-opportunity-zones-with-lowest-median-home-prices
6. “Share Of Homes Bought With Cash Ticks Down From November Peak” Forbes, 15 Feb. 2023, https://www.forbes.com/sites/brendarichardson/2023/02/15/share-of-homes-bought-with-cash-ticks-down-from-november-peak/
7. “U.S. Homeowners Have Collectively Lost $2.3 Trillion in Property Value Since the Summer” Mansion Global, 22 Feb. 2023, https://www.mansionglobal.com/articles/u-s-homeowners-have-collectively-lost-2-3-trillion-in-property-value-since-the-summer-81f3ab46
