Investors Flee The Housing Market In Troubling Sign For The Economy

Investors bought 30% fewer homes in the third quarter of 2022 compared to the same time period last year, as high borrowing costs pressured investors out of the housing market, according to real estate brokerage Redfin Tuesday.

Besides a brief plunge in the second quarter of 2020 in response to the beginning of the coronavirus pandemic, the decline was the steepest since 2008, and surpassed the 27.4% overall decline in home purchases nationwide, Redfin reported. The pandemic ultimately boosted demand for homes in suburban areas, sending investors on buying spree as they raised rents in those areas, in some cases by double digits, The Wall Street Journal reported Tuesday.

The average 30-year fixed mortgage rate was 6.61% for the week ending Nov. 17, 2022, more than double the 3.10% rate set for the week ending Nov. 18, 2021, according to Freddie Mac. Until the Federal Reserve eases its aggressive campaign of interest rate hikes designed to combat inflation, rates are unlikely to return to their pandemic-era levels.

“It’s unlikely that investors will return to the market in a big way anytime soon. Home prices would need to fall significantly for that to happen,” Redfin Senior Economist Sheharyar Bokhari said in Redfin’s press release. “This means that regular buyers who are still in the market are no longer facing fierce competition from hordes of cash-rich investors like they were last year”

At their peak in the first quarter of 2022, investors represented roughly 20% of all home purchases nationwide, a number that has since moderated to roughly 17.5% but remains above pre-pandemic norms, according to the WSJ. During the lull some investors, including J.P. Morgan and rental real estate firm Tricon Residential, are building stockpiles to the tune of billions of dollars to rapidly purchase homes when mortgage rates go down.

Investors typically have the ability to take advantage of lower rates before general consumers are able to react, Redfin’s chief economist, Daryl Fairweather, told the WSJ. Elevated mortgage rates have sent the median income necessary to purchase a median-priced home skyrocketing to $88,400, nearly double the requisite salary in 2019, according to chief economist Lawrence Yun of the National Association of Realtors.

“An investor may have more resources to jump in at exactly the moment when rates decline,” Fairweather said, according to the WSJ.

Tricon’s CEO Gary Berman told shareholders in a November earnings call that the firm would “lean in and deploy” nearly $3 billion in funding to purchase homes “when the time is right,” the WSJ reported.

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