Despite consistent market challenges, the investor marketshare remains high, up from pre-pandemic levels but still down from its peak, according to a new report from realtor.com®.
Realtor.com®’s investing report found that the share of investor purchases remained high (8.5%-plus) from January 2022 through June 2022—reaching a recent record high of 8.9% in February 2022—before slowing as the economic outlook became more uncertain and mortgage rates started to rise. However, the report also found that the share climbed again from October 2022 to December 2022, reaching back up to 8.2%.
Key highlights:
- All-cash investor purchases soften in 2022, as market competitiveness wanes. In 2022, 68.9% of investors paid in cash, slightly lower than the 72.3% of investors in 2021 who purchased with cash.
- In 2021 and 2022, roughly 85% of large investors (50 or more homes) purchased properties with cash, while only about 67% of small investors (10 or less homes) did the same.
- Larger investors pull back, cede marketshare to small investors. Small investors have consistently purchased the largest share of homes, but with access to more capital, the growth in activity from larger investors outpaced smaller investors in 2021 and the first half of 2022.
- Early in the pandemic-era boom, as housing demand skyrocketed and rents increased, larger investors edged out smaller investors, growing their share of investment purchases from 16.7% in July 2020 to a high of 31.8% in June 2022.
- In the second half of 2022, investor purchasing shifted back toward small investors who are more likely to use a mortgage, suggesting that large investors had sufficient access to capital to compete in the hot 2021/2022 markets by purchasing with cash, but this behavior cooled as the market cooled, enabling smaller investors to once again compete.
- Investors are still competing with buyers more often than sellers. The investor-buyer count outpaced the investor-sale count each month since September 2020, but hit a peak in June 2022, and the gap between their buying and selling of homes fell lower at the end of 2022.
- As rent growth cooled, the incentive for investors to rent homes rather than sell became less, and the gap between their buying and selling of homes was about 2,800 more homes bought than sold—roughly one-fifth its size at its June 2022 peak (13,000 homes).
- In 2022, Southern metros experienced the greatest share of and growth in investor activity, followed by the Midwest. Memphis, Tennessee, saw the greatest growth in investor interest in 2022; nearly one-fourth of homes sold were purchased by investors.
- St. Louis, Missouri (21.1%); Indianapolis, Indiana (19.2%); Birmingham, Alabama (17.7%); and Kansas City, Missouri (17.0%) rounded out the top five metros seeing the most investor activity during this time.
Major takeaway:
“With mortgage rates rising and rent growth slowing, many investors, especially larger ones, pulled back last year from the feverish rate in which they bought and sold homes during the early pandemic boom years, enabling smaller investors and buyers to better compete,” said realtor.com® Research Data Analyst Hannah Jones. “Despite easing back, investor activity still remained high in 2022, especially in more affordable markets in the South and Midwest.”
For the full report, click here.
