Investor retreat from the housing market persists

Investors in the first quarter took a massive step back from their past spending sprees, although they still accounted for a sizable chunk of purchase activity. 

Residential real estate investor buyers purchased 48.6% fewer homes at the beginning of the year than they did over the same period in 2021, according to Redfin. The dip, spurred in part by lofty mortgage rates, is the second quarter in a row in which institutions saw a record year-over-year drop-off. 

"While investors have pumped the brakes on home purchases, they're still scooping up a bigger share of homes than they were before the pandemic, which can create challenges for individual buyers at a time when there are so few homes for sale," said Sheharyar Bokhari, Redfin senior economist, in a press release. 

Investors, defined by the platform as any business that purchases homes, still proved to be stiff competition for homebuyers in the low-inventory landscape. Between January and March, the cohort made 17.6% of all home purchases, a share still above pre-pandemic figures, according to Redfin. 

Over the first quarter, investors bought 41,181 homes for $27.5 billion. The results are a distant mark from the $51.2 billion businesses spent in the first quarter of 2022, and less than half of the over 95,000 homes they purchased in the third quarter of 2021, Redfin said. The 15.9% decline in investor purchases quarter-over-quarter also coincided with the 14.7% decline in overall home purchases.

Home prices, which appear to be plateauing, are also cutting into investors' profits. In March, the group sold 1 of every 7 homes at a loss; close to a seven-year high. Flippers also saw losses on 20.8% of transactions, Redfin said. On average, companies paid $427,901 in the first quarter for a property, a cost that has remained flat in recent quarters. 

Slowing rent growth is also cutting into investor profits, after a period in which renting was less costly than a mortgage payment.

Mortgage rates remain elevated, while activity sits 36% lower than the same time last year, according to the Mortgage Bankers Association. The factors may lead to another quarterly drop in investor purchases in the face of a traditional spring market bump, Bokhari wrote. 

The institutional buyers lost market share in 17 of the nation's top 40 metros analyzed by Redfin, including once-coveted Sun Belt metros. Purchase volume by businesses fell 60% or greater in Atlanta, Charlotte, Nashville and Phoenix.