Redfin Reports Investor Home Purchases Post Biggest Increase in Two Years

Rhea-AI Summary

Redfin reports a 3.4% year-over-year increase in investor home purchases in Q2 2024, the largest rise since Q2 2022. Investors bought 16.8% of U.S. homes sold, spending $43 billion, up 13.7% from last year. This surge is attributed to strong rental demand due to high home prices and mortgage rates. San Jose and Las Vegas saw the biggest jumps (27%) in investor purchases, while Fort Lauderdale experienced the largest decline (-15.9%). Single-family homes drove the increase, with investor purchases rising 6.7% year-over-year. Notably, investors bought 24.1% of low-priced homes, up from 22.7% last year, highlighting their focus on more affordable properties.

Positive

• Investor home purchases increased 3.4% year-over-year in Q2 2024
• Investors spent $43 billion on home purchases, up 13.7% from last year
• Investor market share rose to 16.8% of U.S. homes sold in Q2
• Single-family home purchases by investors increased 6.7% year-over-year
• Investor purchases in San Jose and Las Vegas surged by 27%

Negative

• Overall U.S. home purchases fell 1.9% due to high mortgage rates and prices
• Investor purchases of multifamily properties, condos/co-ops, and townhouses decreased
• Investor home purchases in Fort Lauderdale declined by 15.9%
• The typical home sold by an investor in June had a lower profit margin compared to last year

Insights

Financial Analyst

The 3.4% year-over-year increase in investor home purchases marks a significant shift in the real estate market. This $43 billion investment indicates renewed confidence among investors, potentially driven by strong rental demand and expectations of future rent increases. The 16.8% market share for investor purchases is noteworthy, suggesting a competitive advantage over individual buyers in the current high-interest-rate environment.

The 58% median profit on investor sales, while down from last year, remains above pre-pandemic levels. This, combined with only 5% of investor sales resulting in losses, indicates a generally profitable market for real estate investors. Regional variations, such as the 27% increase in San Jose and Las Vegas, highlight the importance of local market dynamics in investment decisions.

Market Research Analyst

The shift towards single-family homes, representing 69.4% of investor purchases, is a key trend. This could be a response to changing renter preferences post-pandemic, favoring more space and privacy. The 24.1% investor share in low-priced homes suggests a focus on affordable properties, potentially aiming at the largest segment of the rental market.

The regional disparities, such as the 15.9% decrease in Fort Lauderdale versus increases in California markets, underscore the importance of local economic factors and regulations in shaping investment strategies. The mention of overseas investors and tech money in San Jose hints at the diverse sources of capital flowing into the market, which could have implications for local housing affordability and market stability.

Economic Analyst

This report reflects broader economic trends, particularly the impact of high mortgage rates on homeownership accessibility. The surge in investor activity, especially in cash purchases (69% of investor buys), demonstrates how capital-rich entities can capitalize on market conditions that challenge individual buyers. This could exacerbate wealth inequality and housing affordability issues.

The slowdown in apartment construction mentioned could lead to rent increases, potentially improving returns for investors but further straining affordability for renters. The varying investor activity across different property types and price ranges suggests a nuanced market response to economic conditions. The data also hints at a potential 'normalization' of the market post-pandemic, with investor activity inching back towards pre-pandemic levels, indicating a possible stabilization of the housing market after recent volatility.

Investors bought 1 of every 6 U.S. homes that sold—purchasing $43 billion worth of properties—and 1 of every 4 low-priced homes that sold

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) — Investor purchases of U.S. homes rose 3.4% year over year in the second quarter—the largest increase since the second quarter of 2022. That is according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage.

Investors purchased $43 billion worth of homes in the second quarter, up 13.7% from a year earlier—also the biggest gain in two years.

Investor activity in the housing market is stabilizing following several years of dramatic ups and downs. Investor home purchases more than doubled during the pandemic homebuying boom in 2021, and then plunged nearly 50% last year as declining rents and home values ate into potential profits.

“One reason real estate investors are coming out of hibernation is to take advantage of robust demand from renters,” said Redfin Senior Economist Sheharyar Bokhari. “Elevated home prices and mortgage rates have pushed homeownership out of reach for a lot of Americans, which is fueling demand for rentals. Investors, many of whom can afford to pay in cash to avoid the sting of high mortgage rates, are cashing in on that demand.”

Mortgage rates did drop to the lowest level in over a year last week after a weaker-than-expected jobs report stoked recession fears, which helped homebuyers gain tens of thousands of dollars of purchasing power. Still, homeownership remains out of reach for many Americans.

While renter demand is strong, rents have been sluggish because a lot of new apartments have been hitting the market following a construction boom during the pandemic. That means property owners have been competing for tenants and have had less room to boost prices. But apartment construction is starting to slow, which could cause rents to rebound in the coming years—another factor that may be bringing investors off of the sidelines.

Investor purchases were near a low point in the second quarter of 2023—another reason they’re now rising on a year-over-year basis. They appear to be inching back toward pre-pandemic levels.

Investors Bought 1 in 6 U.S. Homes that Sold in the Second Quarter

Investors purchased 16.8% of U.S. homes that sold in the second quarter—the highest second-quarter share on record aside from 2022. That’s down from an all-time high of 20.8% hit during the pandemic but up from 16% a year earlier.

Investors have seen their market share inch up because they’ve come off the sidelines faster than individual buyers. While investor home purchases rose 3.4% in the second quarter, overall U.S. home purchases fell 1.9% as elevated mortgage rates and prices deterred buyers. Investors are less sensitive to mortgage rate fluctuations than regular buyers because most of them (69%) pay in cash, though they’re still somewhat sensitive because they often take out different loans to cover home flipping and other expenses.

Other data highlights: June 2024

• The typical home sold by an investor in June went for 58% more ($190,404) than the investor bought it for. That’s down from 62.1% a year earlier, but is still higher than pre-pandemic levels.
• 5% of homes sold by investors sold for a loss, down from 5.8% a year earlier and below pre-pandemic levels.

Investor Home Purchases Are Up Almost 30% in San Jose and Las Vegas, Down Over 15% in Fort Lauderdale

In both San Jose, CA and Las Vegas, investor home purchases rose 27% year over year in the second quarter—the biggest jump among the metros Redfin analyzed. Next came three more California metros: Sacramento (18.9%), Los Angeles (17.9%) and San Francisco (17.8%).

San Jose also saw the largest gain in overall home purchases, which rose 15.2% year over year in the second quarter. San Francisco came in second place. The Bay Area’s housing market has been bouncing back after slowing substantially during the pandemic, and investors have reaped hefty gains over the last year.

The typical San Francisco home sold by an investor in June went for $685,500 more than the investor bought it for, up 50.7% from a year earlier. That’s the biggest increase among the metros Redfin analyzed. Next came San Jose, where the median capital gain rose 48.3% to $808,500.

Craig Pellegrini, a Redfin Premier real estate agent in San Jose, said about one-quarter of buyers he speaks to are investors. Roughly half are institutional investors and the other half are mom-and-pop investors, he said.

“San Jose has a lot of overseas investors buying sight-unseen, and a lot of home flippers who are purchasing dilapidated homes, putting some lipstick on them, and selling them for a profit,” Pellegrini said. “I’m also seeing parents buy second homes that they plan to rent out for a while and then pass on to their kids, some of whom just graduated college and can’t afford to buy themselves.”

Pellegrini continued: “There are a lot of folks with tech money who bought homes here in the early 2000s, built a ton of equity, and are now taking on a side hustle as a real estate investor. But there are also folks who are renting in neighborhoods like Mountain View and Los Altos, and then buying investment properties in San Jose—which has lower home prices—to build equity.”

Investor home purchases fell fastest in Fort Lauderdale, FL (-15.9%), Providence, RI (-12.4%), New Brunswick, NJ (-11.9%), Miami (-11.3%) and Chicago (-11.1%).

“Even though rents are high here, the insurance rates and property taxes are also high, making it difficult for the numbers to make sense for investors,” said Bob Benson, a Redfin Premier real estate agent in Fort Lauderdale.

Single-Family Home Purchases Are Driving the Increase in Investor Activity

Investor purchases of single-family homes rose 6.7% year over year in the second quarter, the biggest increase in two years. Meanwhile, investor purchases of multifamily properties (2-4 units), condos/co-ops and townhouses fell a respective 5%, 3.3% and 1.9%.

Single-family homes represented 69.4% of investor purchases in the second quarter—the highest percentage since mid-2022. Meanwhile, condos/co-ops represented 19.4%, townhouses made up 6.5% and multifamily properties made up 4.7%—all lower than a year earlier.

Investors have also gained market share in the single-family segment; 16.4% of U.S. single-family homes that sold in the first quarter were purchased by investors, up from 15.2% a year earlier. The share of condos/co-ops bought by investors also ticked up slightly, to 17.2%. The share of multifamily properties fell slightly to 30.7% and the share of townhouses was unchanged at 15.1%. Investors have a relatively large market share in the multifamily segment because those buildings are typically too expensive/not feasible for regular homebuyers, and apartments offer the potential for large returns from rental income.

Investors Bought One-Quarter of America’s Most Affordable Homes

About 1 in 4 (24.1%) of low-priced U.S. homes that sold in the second quarter were bought by investors, up from 22.7% a year earlier. Meanwhile, 14.7% of high-priced homes and 12.1% of mid-priced homes that sold were purchased by investors.

Low-priced homes represented 45.2% of investor purchases, while high-priced homes made up 30.9% and mid-priced homes accounted for 23.9%.

Other Metro-Level Highlights

Where investors bought the highest/lowest share of homes that sold: Q2 2024

• Highest share: In Miami, investors bought 28.5% of homes that sold. Next came San Diego (23.7%), Anaheim, CA (23.3%), Las Vegas (22.3%) and Los Angeles (22.2%).
• Lowest share: Providence, RI (8.5%), Washington, D.C. (8.7%), Warren, MI (9.2%), Montgomery County, PA (9.5%), Seattle (9.7%).

Where the share of homes bought by investors increased/decreased most from a year earlier: Q2 2024

• Biggest increases: In Las Vegas, investors bought 22.3% of homes that sold, up 4.2 percentage points from a year earlier. Next came Los Angeles (+3.3 ppts), Sacramento (+3.2 ppts), Oakland, CA (+2.9 ppts) and Phoenix (+2.8 ppts).
• Biggest decreases: Miami (-2.3 ppts), Cincinnati (-1.6 ppts), Cleveland (-1 ppt), Seattle (-1 ppt), Philadelphia (-0.9 ppts).

To view the full report, including charts, methodology and additional metro-level data, please visit: https://www.redfin.com/news/investor-home-purchases-q2-2024

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We run the country's #1 real estate brokerage site. Our customers can save thousands in fees while working with a top agent. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Customers selling a home can have our renovations crew fix it up to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Since launching in 2006, we've saved customers more than $1.6 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people.

Redfin’s subsidiaries and affiliated brands include: Bay Equity Home Loans®, Rent.™, Apartment Guide®, Title Forward® and WalkScore®.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240815359185/en/

Redfin Journalist Services:

Ally Braun, 206-588-6863

press@redfin.com

Source: Redfin

FAQ

What percentage of U.S. homes did investors purchase in Q2 2024 according to Redfin (RDFN)?

According to Redfin (RDFN), investors purchased 16.8% of U.S. homes that sold in the second quarter of 2024.

How much did investor home purchases increase year-over-year in Q2 2024 for Redfin (RDFN)?

Redfin (RDFN) reported that investor home purchases increased 3.4% year-over-year in the second quarter of 2024.

Which cities saw the largest increase in investor home purchases in Q2 2024 according to Redfin (RDFN)?

According to Redfin (RDFN), San Jose, CA and Las Vegas saw the largest increase in investor home purchases, both rising 27% year-over-year in Q2 2024.

What percentage of low-priced homes were bought by investors in Q2 2024 as reported by Redfin (RDFN)?

Redfin (RDFN) reported that investors bought 24.1% of low-priced U.S. homes that sold in the second quarter of 2024.