The U.S. housing market may have slowed in the second quarter of this year, but investors didn’t let up on their investments.
The number of home purchases by investors rose 3.4% year-on-year in the second quarter of 2024, the biggest increase since the second quarter of 2022, the report released on Thursday showed. Redfin.
In comparison, total U.S. home purchases fell 1.9% over the same period, which Redfin attributes to rising mortgage rates and home prices. Investors are still sensitive to changes in mortgage rates, but they are less sensitive than consumer buyers because 69% of investors pay with cash.
The study was based on an analysis of county-level home-buying records for the 39 most populous U.S. metropolitan areas dating back to 2000. Redfin defined an investor as “any institution or company that purchases residential real estate” and said the report covers both institutional and individual investors.
Investors bought a total of $43 billion worth of homes in the second quarter, up 13.7% from the same period last year and also the biggest increase in the past two years.
Redfin found that investors bought 16.8% of homes sold in the second quarter of 2024 (roughly 1 in 6 homes), up from 16% a year ago. This is the highest second-quarter share on record, except for 2022 (20.8%).
Redfin said the second-quarter 2024 data shows investor activity stabilizing after more than doubling during the pandemic-induced homebuying boom in 2021. Investor activity then plummeted by almost 50% in 2023 as rents and home prices fell in some markets.
While rental demand remains strong, rent increases have slowed as a flood of new apartments hit the market and competition for tenants has intensified. Multifamily construction starts, however, have slowed, which is good news for landlords looking to raise rents.
Redfin attributes the rally to investors being quicker to come off the sidelines than consumer buyers.
“Part of the reason real estate investors are coming out of hibernation is to take advantage of strong demand from renters,” Sheharyar Bokhari, senior economist at Redfin, said in a statement.
“Rising home prices and mortgage rates have put homeownership out of reach for many Americans, increasing the demand for rental housing. Investors who can afford to pay cash to avoid the pain of high mortgage rates are capitalizing on that demand.”
Additionally, the brokerage noted that the increase in investor activity was driven by purchases of single-family homes, which increased 6.7% year-over-year in the second quarter of 2024. In contrast, investor purchases of multifamily homes (two to four units), condominiums and co-ops, and townhouses declined 5%, 3.3%, and 1.9%, respectively.
Overall, single-family homes accounted for 69.4% of all purchases by investors in the second quarter of 2023, the highest share since mid-2022. Condominiums and co-ops accounted for 19.4%, followed by townhouses (6.5%) and apartment complexes (4.7%).
Redfin noted that investors generally favor single-family properties in this market segment due to relatively strong rent growth and low tenant turnover.
This data supports the Mortgage Bankers Association According to the (MBA), multifamily lending is projected to fall 49% to $246 billion in 2023.
“Multifamily lending for 2023 has fallen by nearly half as fewer sales transactions and a much smaller number of property owners are looking to refinance their loans,” Jamie Woodwell, MBA’s director of commercial real estate research, said in a statement.
In terms of 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 ago but above pre-pandemic levels. Only 5% of investor-sold homes were at a loss, down from 5.8% in the second quarter of 2023 and below pre-pandemic levels.
This can be attributed, at least in part, to the fact that 24.1% of low-priced homes sold in the second quarter of 2024 were purchased by investors, up from 22.7% the year before. By comparison, 14.7% of high-priced homes and 12.1% of mid-priced homes sold were purchased by investors.
Affordable properties, which Redfin describes as the bottom third of the local market’s price range, accounted for 45.2% of all investor home purchases in the second quarter. High- and mid-priced homes accounted for 30.9% and 23.9%, respectively.
Among the individual markets analyzed, San Jose and Las Vegas (up 27%) had the highest annual growth in investor home buying, with three other large California cities — Sacramento (+18.9%), Los Angeles (+17.9%) and San Francisco (+17.8%) — also rounding out the top five.
The San Jose metro area saw the largest overall increase in home purchases in Q2 2024, up 15.2% year over year, while the San Francisco metro area saw the largest annual increase in investor ROI for properties sold in June. The typical San Francisco home sold by an investor went for $685,500 more than the original purchase price, up 50.7% year over year.
“San Jose is rife with overseas investors who buy without seeing, as well as home flippers who buy rundown homes, put lipstick on them and sell them for a profit,” Craig Pellegrini, an agent with Redfin Premier in San Jose, said in the report.
“We also see parents buying second homes, renting them out for a while and then planning to pass them on to their kids, some of whom are just graduating college and can’t afford to buy a home themselves. There are a lot of wealthy people in the tech industry who bought homes here in the early 2000s, made a lot of money and now do side work as real estate investors. But we also see people building wealth by renting in areas like Mountain View and Los Altos and then buying investment properties in San Jose, where housing prices are lower.”
Meanwhile, the cities with the largest year-over-year declines in investor home purchases were Fort Lauderdale, Florida (-15.9%), Providence, Rhode Island (-12.4%), New Brunswick, New Jersey (-11.9%), Miami (-11.3%) and Chicago (-11.1%).
“Rents are high here, but insurance and property taxes are also high, making the numbers hard for investors to swallow,” Bob Benson, an agent with Redfin Premier in Fort Lauderdale, said in the report.
The markets with the highest share of investor home purchases in Q2 2024 were Miami (28.5%), San Diego (23.7%), Anaheim, California (23.3%), Las Vegas (22.3%) and Los Angeles (22.2%). Conversely, the markets with the lowest shares were Providence, Rhode Island (8.5%), Washington DC (8.7%), Warren, Michigan (9.2%), Montgomery County, Pennsylvania (9.5%) and Seattle (9.7%).
