With headwinds like low inventory, elevated mortgage rates and still-increasing home prices, it’s been a difficult time for many Americans to become homeowners. Adding to that struggle has been another inhibitor—institutional buyers. These types of buyers, such as hedge funds and other financial firms, are now players in the single-family home market, often buying houses to convert them into rental units. But while agents and consumers have worried that these buyers have additionally strained housing supply—new data suggests their activity in the market, while still higher than pre-pandemic years, declined last year.
According to Realtor.com’s Fall 2023 Investor Report (measuring data up to September of that year), investor home purchases declined in 2023, reaching only 10.8% compared to 12% a year prior. However, this 10.8% figure is still higher than pre-pandemic numbers.
A big part of the change is a decline in all-cash investors – 60.2% of investor buyers paid in cash during 2023, down 4.1% from the previous year. The report attributes this decline to a less competitive market; cash offers are enticing to sellers and affordable to large firms, so they’re a good way to make a quick transaction in a competitive market. In a slower market, though, buyers with lots of capital are less inclined to make such offers.
In turn, this market cooldown has seen small investors gain ground – 67.6% of investor purchases were by small investors in 2023, compared to 54.1% a year prior.
Southern metro areas are home to the greatest number of investor buyers (for instance, 20.8% of 2023 home sales in Oklahoma City were by investors), yet also the greatest year-over-year decline in investor purchases (15% in 2022 to 12.1% in 2023). Conversely, the Northeast has the lowest percentage of investor purchases but is the only U.S. region that saw an increase in purchases (7.4% in 2022 to 8% in 2023).
Realtor.com Research Data Analyst Hannah Jones said of these findings: “While widespread unaffordability hampered homebuyer activity in 2023, it cut more deeply into investor activity as investors saw less opportunity and their share of home purchases declined from the previous year’s levels. Despite investor activity falling from 2022 highs, the market remains appealing to investors, who continue to make a higher share of overall purchases than was common before the pandemic.”
For the full report, visit realtor.com.