Investors Are Buying Fewer Homes Than Pandemic Peak, But Their Share Continues To Grow Amid Changing Housing Market
Rising mortgage rates are moving the housing market in a new direction since the onset of the Covid-19 pandemic-induced boom.
But what impact escalating interest rates will have on investors that buy homes to rent them out is to be determined, although first-quarter investor purchasing activity gives early indication that investors are slowing their pace of homebuying.
Seattle-based Redfin Corp. found the number of homes purchased by real estate investors in the first quarter declined 11.5% from the fourth quarter of 2021 and 16.5% from Q3 2021. Despite that, investor purchases made up a larger share of the housing market, purchasing a record 20% of homes that sold in Q1, an increase of 19.2% from the end of 2021 and a15.3% annual increase.
That’s owing to a slowing housing market in the first quarter, which saw a decrease in overall home purchases nationally, according to Redfin.
“The reasons for fewer investor purchases in Q1 could vary but rising interest rates are likely a factor,” said Sheharyar Bokhari, senior economist at Redfin.
Whether investors or owner-occupiers are more sensitive to rising rates is something Thomas Malone, an economist at Irvine, California-based CoreLogic Inc., is watching closely.
“It’s just a guess at this point but he suspects investors might be more sensitive to that upward movement,” said Malone. “Investors would be considering real estate amongst a broad set of asset classes to invest in whereas, for a homeowner, buying is more of a lifestyle choice.”
An owner-occupier may opt for a smaller home or one in a different neighborhood when faced with higher costs to buy a home, whereas investors could reallocate capital out of real estate.
Bokhari said the expectation is sellers aren’t going to be able to sell their homes as quickly as they have, especially as they did last year, which’ll result in price cuts. Investors may, therefore, be holding off to take advantage of better deals down the line.
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