The housing market has cooled to the point that even deep-pocketed investors are pulling back

Imagine that a corporation makes a higher bid on a single-family home. This has been all too real in recent years, as real estate purchases by investors surged, fueling the epidemic housing boom and pricing many homebuyers out of the market.
Last year, the average 30-year fixed mortgage interest rate rose to more than 7%. The year before, mortgage rates were at historic lows and demand was high, driving the investor frenzy in the housing market. Redfin's new real estate brokerage report shows how much of a difference there is in residential real estate purchases by investors between the two years.
In the fourth quarter of 2022, home purchases by investors fell 45.8% compared to the same period last year, as mortgage rates rose and home prices fell, Redfin researchers wrote. To add some perspective, the housing crisis of 2008 saw a slightly smaller decline, with investor purchases down 45.1%.
For the purpose of this report, researchers analyzed county records across 40 US metropolitan areas, and they define an "investor" as any institution or business that purchases residential real estate.
"Investors piled into the housing market in 2021 due to record-low mortgage rates and rising demand for housing, and are now pulling back amid forecasts that housing prices have room to fall," the report said.
Epidemic towns like Las Vegas and Phoenix are already seeing sharp corrections. In Las Vegas, home purchases by investors fell 67% in the fourth quarter of last year from a year earlier, which Redfin researchers found was the biggest drop among the 40 metro areas they looked at.
The Phoenix recorded a 66.7% decrease in that period. Meanwhile, Nassau County experienced a 63% decrease, Atlanta a 62.8% decrease and Charlotte a 61.9% decrease. All of these made up the top half of the 10 biggest declines reported by Redfin. The second half, according to the report, included: Jacksonville (down 57.1% in the fourth quarter of 2022 from the previous year), Nashville (54.8%), Sacramento (53.5%), Riverside (-53.0%), and Orlando (-51.8 %).
Some of the smallest declines, of less than 10%, were seen in Milwaukee, New York and Providence. Meanwhile, Baltimore was the only metro city Redfin analyzed with an increase in home purchases by investors, up 1.4 percent.
Interestingly, there has also been a shift in what exactly investors are purchasing. Redfin researchers found that single-family home purchases by investors fell 49.8% year-over-year in the fourth quarter of 2022. The decline was the largest of any other property type. For example, apartment purchases by investors decreased by 35.6% and purchases of multi-family housing properties decreased by 31.1%. But despite being the biggest drop, single-family homes are still the popular choice among investors.
And homebuying investors are tightening their wallets, with high-priced and mid-priced home purchases both down more than 50%. Meanwhile, investor purchases of low-priced homes fell 28.6%, according to the report.
However, mortgage rates have fallen slightly this year and some markets are seeing an increase in activity as the busy season begins, so that could spark investor interest.
"Investors may start to wade back into the market this year given that mortgage rates are down from their 2022 peak — especially if housing prices show signs of bottoming out," said Redfin senior economist and report researcher Shahriar Bukhari. "But it is unlikely that investors will return with the same strength they had in 2021."
And that could actually be good news for individual buyers, Bukhari added, in that they would no longer lose bidding wars to investors.