Investors Making a Comeback

Exciting news for the real estate market! Investors are making a cautious yet notable return to the U.S. housing market after a two-year retreat. This comeback, however, comes with a strategy shift due to low inventory levels.

A Slight Increase in Investor Purchases

According to Redfin Corp. (Nasdaq: RDFN), purchases by investors grew by 0.5% year-over-year in Q1. Redfin defines investors as buyers with names that include LLC, Inc., Trust, Corp., or Homes, or with ownership codes such as association, corporate trustee, company, joint venture, or corporate trust.

Current Market Dynamics

Despite this increase, investor activity remains below pandemic-era levels. High interest rates, limited home inventory, and an oversaturated rental market are key factors influencing this trend. Real estate investors bought around 44,000 homes in the first quarter, making substantial profits on sales. Homes sold by investors in March went for 55.2% more than their purchase price, up from 46.3% a year earlier.

Market Reset

Sheharyar Bokhari, senior economist at Redfin, notes that the year-over-year gain represents a market reset rather than a significant increase. “The level of purchases is still below pre-pandemic levels. It’s sort of stabilized at a lower point now,” he said.

Decline and Recent Uptick

Investor purchases started to decline in the second half of 2022, aligning with the Federal Reserve’s interest-rate hikes. The first quarter of 2024 saw the first increase in investor purchasing activity in two years.

Small and Medium Investors Leading the Way

While institutional investors (those owning 100 or more homes) are buying less than 2% of all homes, smaller investors are more active. In 2024, investors have purchased about 25% of all homes sold, mostly from small and medium-sized groups. This is a significant increase from 12% in 2002.

Regional Variations

Investor activity isn’t concentrated in the Sun Belt metros as it was during the pandemic. California markets like San Jose and Oakland are seeing higher investor purchases, possibly due to wealthy individuals or celebrities using trusts for real estate transactions. In contrast, cities like Atlanta and Charlotte, where investors were very active three years ago, now see reduced investor activity.

Changing Strategies Amid Low Inventory

Big investors are shifting strategies due to low home inventory. Some have become net sellers, putting more homes on the market than they are buying. For example, Dallas-based Invitation Homes Inc. (NYSE: INVH) acquired 273 homes but sold 399 in Q1.

Partnerships with Homebuilders

Major investors are increasingly partnering with homebuilders to create new build-to-rent homes. Invitation Homes is collaborating with D.R. Horton Inc., Meritage Homes Corp., and Dream Finders Homes Inc. to build around 500 new rental homes this year in markets like Charlotte, Jacksonville, and Nashville.

Sun Belt Market Moderation

Charles Young, COO at Invitation Homes, noted that while Florida markets remain strong, areas like Tampa and Orlando are seeing a slowdown. This moderation is viewed as a return to normal seasonality post-Covid, rather than a market downturn.

Conclusion

Investors are cautiously re-entering the housing market with adjusted strategies. Whether you’re an investor or a potential homeowner, these shifts present new opportunities and challenges.

BRAZOBAN Realty Group

At BRAZOBAN Realty Group, we’re here to help you navigate these dynamic market conditions. Whether you’re buying, selling, or investing, our friendly and professional team is ready to assist. Leave a comment, subscribe to our newsletter, and stay updated with the latest real estate news and opportunities.

Source: Ashley Fahey – Editor, The National Observer: Real Estate Edition, The Business Journals, Redfin Corp.