Redfin Reports Investor Home Purchases Rise for the First Time in Nearly Two Years

Rhea-AI Summary

Real estate investors bought 19% of U.S. homes sold in Q1 2024, the highest share in nearly two years, according to Redfin (NASDAQ: RDFN). Investors purchased approximately 44,000 homes, a 0.5% increase from the previous year. Single-family homes saw a 3.9% rise in investor purchases, while other types, like townhouses and condos, experienced declines. Investor profits are up, with typical returns now 55.2% higher than purchase prices. High-priced homes saw a 10.5% increase in investor buying, while low-priced homes still make up the largest share at 47.5%. Cities like San Jose and Oakland saw significant increases in investor activity, while places like Cincinnati experienced declines.

Positive

• Investor home purchases rose 0.5% year-over-year in Q1 2024.
• 19% of homes sold in Q1 2024 were bought by investors, the highest in nearly two years.
• Investors' typical profit margins increased to 55.2%, up from 46.3% a year earlier.
• Only 5.3% of homes sold by investors were at a loss, down from 13.7% in March 2023.
• Investor market share for single-family homes increased by 3.9%.
• Investors purchased $31.3 billion worth of homes in Q1 2024, a 6.6% increase year-over-year.
• High-priced home purchases by investors jumped 10.5% year-over-year.
• Cities like San Jose saw a 27.8% increase in investor home purchases, the largest among analyzed metros.

Negative

• Overall U.S. home purchases fell 3.9% year-over-year in Q1 2024.
• Investor purchases of townhouses, condos/co-ops, and multifamily properties fell 8.6%, 6.4%, and 2.5% respectively.
• Investor purchases of low-priced homes decreased by 6.5% year-over-year.
• Some markets experienced significant declines in investor activity, including Cincinnati (-22.1%) and Baltimore (-22%).

Insights

Market Research Analyst

The return of investor activity in the housing market signals a potential stabilization after a period of volatility. Investors buying 19% of U.S. homes in Q1 2024 reflects confidence, even amid elevated mortgage rates. This could suggest a bottoming out of the market downturn witnessed since the pandemic's peak. Notably, the higher profit margins for investors, with a median of 55.2% increase in sale prices, reveal favorable conditions for resale. However, the dominance of cash purchases (69%) underscores a segment of the market less affected by interest rates, which could skew general market perceptions.

Retail investors should note the higher competition for single-family homes, often a preferred asset due to its steady rent growth and lower tenant turnover. While the 3.9% increase in single-family home purchases by investors could drive prices up, it also suggests robust demand, making this segment potentially lucrative. The shift towards more expensive homes indicates a targeted investment strategy, focusing on higher returns. Areas like California, where investor activity has surged, might see faster appreciation, benefiting homeowners but potentially pricing out individual buyers.

In summary, the report suggests a cautiously optimistic outlook for the housing market, driven by strategic investor activity.

Financial Analyst

From a financial perspective, the increase in investor home purchases indicates a potential shift towards a more favorable market environment. The notable rise in profits, with homes sold by investors fetching 55.2% more than purchase prices, suggests improved market conditions. This uptick in profitability despite high mortgage rates signals robust demand and effective capital allocation by investors.

The increase in the overall dollar value of homes purchased by investors (up 6.6% year over year) reflects growing investor confidence. This is particularly significant in high-priced markets like California, where substantial gains were recorded. The trend towards more expensive homes aligns with the pursuit of higher returns, albeit with greater exposure to market risks. The disparity in investor activity between high-priced and affordable homes also underscores a strategic approach, balancing potential returns with investment security.

While elevated mortgage rates may deter individual buyers, the fact that a significant portion of investors pay in cash mitigates this issue, reinforcing their market presence. However, retail investors should be aware of potential increased competition and price pressures in targeted markets.

Overall, the financial outlook is positive, with robust investor activity suggesting potential market gains.

Real estate investors bought 19% of U.S. homes that sold in the first quarter—the highest share in almost two years

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) — Real estate investors bought roughly 44,000 U.S. homes in the first quarter of 2024, up 0.5% from a year earlier—the first increase since the second quarter of 2022. That is according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage.

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% at the start of last year as declining rents and home values ate into potential profits. But now, with home prices and rents back on the rise and the initial shock of elevated mortgage rates in the rearview mirror, investors are easing their foot off the brake pedal.

Investors are making more money than before: Investors are reaping bigger profits than they were a year ago. The typical home sold by an investor in March went for 55.2% more ($174,616) than the investor bought it for. That’s up from 46.3% ($146,586) a year earlier. Just 5.3% of homes sold by investors sold for a loss, down from 13.7% in March 2023.

Investor purchases also hit a low point in the first quarter of 2023—part of the reason they’re now rising on a year-over-year basis.

Investors are buying up the biggest chunk of U.S. homes in almost two years: While investors are purchasing fewer homes than they were before and during the pandemic housing frenzy—a result of today’s relatively slow market—they’re still purchasing a fairly high share of the homes. They bought 18.7% of U.S. homes that sold in the first quarter, up from 17.9% a year earlier and the highest percentage in almost two years.

Investors have seen their market share tick up because they’ve come off the sidelines faster than individual buyers; overall U.S. home purchases fell 3.9% from a year earlier in the first quarter as elevated mortgage rates deterred buyers (though it’s worth noting that’s the smallest growth in two years). 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.

“Investor activity is steady,” said Dallas Redfin Premier agent Connie Durnal. “When home prices got crazy high during the pandemic, investors sold out. But several months ago, they started to ramp back up. I’m not seeing a lot of home flippers in our market, but there are a lot of investors looking for single-family homes to rent out, which are in short supply.”

Investors Are Buying More Single-Family Homes Than Before

Investor purchases of single family homes rose 3.9% year over year in the first quarter, the first increase in nearly two years. Meanwhile, investor purchases of townhouses, condos/co-ops and multifamily properties fell 8.6%, 6.4% and 2.5%, respectively. Investors are likely keen on single-family properties because that segment of the market has posted relatively strong rent growth—AKA has stronger ROI potential—and also has lower tenant turnover.

Investors and individual buyers who are in the market to buy a home are often duking it over the same properties, according to Redfin agents. And in some cases, investors are losing.

“The balance of power between investors and regular buyers is changing,” said Amira Elgoneimy, a Redfin Premier real estate agent in New Jersey. “When there’s a bidding war for a home, it has become more common for the winner to be the person who actually plans to live in the home. Individual buyers are sitting on a lot of cash from the sale of their previous house and pandemic savings, so they’re willing to pay a little more upfront than investors, who have to be mindful of margins.”

Single-family homes represented 68.9% of investor purchases in the first quarter—the highest percentage since mid-2022. Meanwhile, condos/co-ops represented 18.7%, townhouses made up 7.2% and multifamily properties made up 5.3%—all down from a year earlier.

Investors have also gained market share in the single-family segment; 18.4% of U.S. single-family homes that sold in the first quarter were purchased by investors—the highest share since mid-2022. Meanwhile, the share of other property types bought by investors fell from a year earlier, to 31.9% for multifamily properties and 18.1% for both condos/co-ops and townhouses. Investors have a relatively large market share in the multifamily segment because those buildings are typically too expensive and not feasible for regular homebuyers, and apartments offer the potential for large returns from rental income.

Investors Are Buying More Expensive Homes Than Before

Investor purchases of high-priced homes jumped 10.5% year over year in the first quarter—the first increase in nearly two years. Meanwhile, investor purchases of mid-priced homes rose 4.7% (also the first increase in nearly two years), and investor purchases of low-priced homes fell 6.5%.

The typical home bought by investors in the first quarter cost $464,560, up 9.2% from a year earlier. Investors purchased $31.3 billion worth of homes in the first quarter, up 6.6% year over year.

Investor purchases of high-priced homes are on the rise in part because investors are buying more single-family homes, which tend to be more expensive than condos and townhouses. But they’re also on the rise because investors have been buying more homes in expensive California markets.

But Investors Are Also Buying a Record 26% of America’s Most Affordable Homes

While high-priced homes made up the biggest increase in investor purchases in the first quarter, low-priced homes were still the preferred property type. Low-priced homes represented 47.5% of investor purchases in the first quarter, while high-priced homes represented 28.5% and mid-priced homes represented 24%. Investors also have a relatively high market share in the affordable market. They bought a record 26.1% of low-priced U.S. homes that sold in the first quarter, compared with 16.4% of high-priced homes and 13.4% of mid-priced homes.

Investors are drawn to affordable homes for the same reason homebuyers are: They cost less, which is especially attractive when home prices and borrowing costs remain elevated. And when housing affordability is this strained, there could be more potential for value increases in the lower price tier, meaning more potential for building equity.

“Any home that is entry-level is immediately pounced on,” said Brian Connelly, a Redfin Premier agent in Boston. “There’s a mix of first-time homebuyers, investors and second-home buyers all fighting for homes.”

Investor Home Purchases Are Soaring in California

In San Jose, CA, investor home purchases jumped 27.8% year over year in the first quarter—the biggest increase among the metros Redfin analyzed. Next came Oakland, CA (22%), Minneapolis (21.6%), Sacramento, CA (20.1%) and San Francisco (18.5%).

The aforementioned metros also saw among the largest increases in overall home purchases in the first quarter. The Bay Area’s housing market has been bouncing back after slowing substantially during the pandemic. People aren't moving out at the pace they were before, and California is now seeing some of the steepest increases in home prices and sales in the country, which investors may see as an opportunity.

Investor home purchases fell fastest in relatively affordable markets in the Midwest and on the East Coast. In Cincinnati, they declined 22.1% from a year earlier—the biggest drop among the metros Redfin analyzed. Next came Baltimore (-22%), Providence, RI (-20.2%), Virginia Beach, VA (-15.1%) and Chicago (-14.6%).

Other Metro-Level Highlights

Where investors bought the highest/lowest share of homes that sold: Q1 2024

• Highest share: In Miami, investors bought 30.6% of homes that sold. Next came Cleveland (24.6%), Jacksonville, FL (24.5%), San Diego (23.6%) and San Francisco (23.4%).
• Lowest share: Providence, RI (10.5%), Montgomery County, PA (10.8%), Warren, MI (11.3%), Washington, D.C. (11.7%) and Seattle (11.7%).

Where the share of homes bought by investors increased/decreased most from a year earlier: Q1 2024

• Biggest increases: In Oakland, investors bought 16.9% of homes that sold, up 2.9 percentage points from a year earlier. Next came Las Vegas (2.7 ppts), Tampa, FL (2.6 ppts), Phoenix (2.5 ppts) and Riverside, CA (2.4 ppts).
• Biggest decreases: Cincinnati (-3.1 ppts), Baltimore (-2.6 ppts), Chicago (-1.6 ppts), Providence (-1.1 ppts) and Seattle (-1.1 ppts).

Where investors had the largest median capital gains: March 2024

• In Philadelphia, the typical home sold by an investor sold for 136.2% more than the investor bought it for. Next came Cincinnati (120%), Virginia Beach (97%), Newark, NJ (96.6%) and Columbus, OH (94.3%).
• In San Francisco, the typical home sold by an investor sold for 28.7% more than the investor bought it for. It was followed by Phoenix (34.4%), Las Vegas (37%), Sacramento (39.5%) and Denver (42.5%).

To view the full report, including charts, methodology and additional metro-level data, please visit: https://www.redfin.com/news/investor-home-purchases-q1-2024

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/20240515822104/en/

Redfin Journalist Services:

Ally Braun, 206-588-6863

press@redfin.com

Source: Redfin

FAQ

What percentage of U.S. homes were bought by investors in Q1 2024?

Investors bought 19% of U.S. homes sold in Q1 2024.

How did investor home purchases change year-over-year in Q1 2024?

Investor home purchases increased by 0.5% year-over-year in Q1 2024.

What is the current typical profit margin for investor home sales?

The typical profit margin for investor home sales is now 55.2%.

Which type of property saw the highest increase in investor purchases?

Single-family homes saw the highest increase in investor purchases, rising by 3.9%.

How much did investors spend on home purchases in Q1 2024?

Investors spent $31.3 billion on home purchases in Q1 2024.

Which metro area saw the largest increase in investor home purchases?

San Jose, CA, saw the largest increase in investor home purchases, rising by 27.8% year-over-year.

Which property type experienced a decline in investor purchases?

Townhouses, condos/co-ops, and multifamily properties experienced declines in investor purchases.

What was the year-over-year change in low-priced home purchases by investors?

Low-priced home purchases by investors fell by 6.5% year-over-year.

Which market experienced the largest decline in investor activity?

Cincinnati experienced the largest decline in investor activity, with a 22.1% drop.