Mega-investors, iBuyers and home flippers are leaving the housing market in droves, but smaller investors are picking up the homebuying slack
Don’t confuse the near-historic highs of the real estate investor home purchase share seen in Q1 2023 with signs of a hot market. Following a steep rise in investor activity for single-family homes, the investor purchase share fell from 28% in February 2022 to 21% in the summer of last year. However, the investor share of total single-family home purchases bounced back to around 27% in the first quarter of 2023.
Figure 1 shows the ebbs and flows of investor share beginning in 2019. Since 2021, there has been a clear surge in investor home purchase activity, which shows no sign of receding back to pre-pandemic levels[1].
While the investor share of single-family home purchases is growing, sales data from Q1 2023 indicate that the real estate market remained comparatively cool for all buyers.
Figure 2 illustrates the number of U.S. home purchases made by both investors and non-investors through March 2023. In January, February and March, investors made 65,000, 71,000 and 85,000 purchases, respectively. All three numbers represent year-over-year declines of more than 30%. In fact, investor purchase levels for the month of January were at the lowest point since May 2020, when COVID-19-related shutdowns were in full swing.
Although investors are buying fewer properties than they were two years ago, purchase patterns from this buyer category are still above 2019 levels. By contrast, owner-occupied purchases are hovering well below their 2019 levels. In January 2023, investors purchased 23% more single-family homes than in 2019. Non-investors on the other hand, made 27% fewer purchases.
Although housing market investors are proportionally maintaining their high purchase share in general, mega-investors are retreating. Figure 3 shows that the mega-investor share remained steady, hovering at around 8% throughout Q1 2023. This is a decline from June 2022, when mega-investors accounted for 17% of investor purchases.
Small investors seem to be more bullish on home purchases, as activity in this group rose from 40% to 47% of total investor purchases over the last four years.
Figure 4 shows that sales numbers greatly declined for all investor tiers over the last year. Throughout Q1, small investors ramped up their purchases from around 29,000 in January 2023 to 40,000 in March 2023. Medium investors also bought more properties, making 24,000 purchases in January 2023 and 30,000 in March 2023.
Large and mega-investor activity, however, did not bounce back to the same extent. In January, both groups made about 6,000 purchases, and these investors only slightly increased activity over the quarter, making slightly more than 7,500 purchases in March 2023.
A declining trend in home flipping is also emerging. Figure 5 shows the share of homes purchased by investors who resold properties within six months through September 2022. Only 11.2% of investors who purchased their homes in September 2022 resold these properties by the end of March 2023, a much lower share than in previous years.
Data over the next few months is likely to show flipping trends further decreasing. Nationally, home price growth has declined for 11 consecutive months, reaching the lowest rate in more than a decade in March. Despite the slowing growth, rents remain high. As a result of this unique combination of declining home prices and inflated rents, most investors will probably continue to rent properties rather than resell them.
It is no coincidence that the share of large investor purchases and flipping activity declined during the same period. Figure 6 examines iBuyer market activity through March 2023. After mega-investor flippers drove growth during the pandemic, March 2023 data demonstrate that iBuyers comprised less than 1% of all investor purchases, marking the lowest activity for this investor class since May 2020.
The overall presence of iBuyers in the market fell to a fairly insignificant level in the first quarter of 2023. In January, February and March of this year, they represented 0.3%, 0.2% and 0.2% of all purchases, respectively. These levels amount to roughly one-eighth of what their peak market share was in mid-2021.
The U.S. investor share remained concentrated in the West, lower Midwest and South in Q1 2023. Figure 7 shows the investor purchase share by state and illustrates that California leads the nation, with investors making 34% of single-family purchases in the state. Georgia and Kansas followed close behind the Golden State with investors making 33% of the total purchases in each state. New Mexico, Mississippi and Texas also had investor purchase rates higher than 30%.
Investors appear to have the least interest in areas on the East Coast and in the Rust Belt. Large states like New York (21%), Pennsylvania (22%), Illinois (24%) and Ohio (24%) all have investor rates below the national average.
Figure 7: Investor Shares by State, Q1 2023
If historical trends hold, the investor share will begin to drop this summer, as owner-occupant buyers move back into the market. However, this upcoming season may buck historical patterns, as market conditions have changed over the last few years.
Since there is little chance that interest rates will recede to the pre-pandemic levels that current borrowers have secured, inventory levels will likely remain low. However, such market conditions might help investors, as these buyers are better able to defray the costs of interest rate hikes by paying all cash or increasing down-payment amounts.
Even though home-flipping activity is declining and U.S. home price growth continues to moderate, rental cost gains still remain elevated above pre-pandemic levels, indicating that demand is high. So for the moment, investors may remain a presence in the housing market.
To keep up to date with the latest market trends, read CoreLogic’s Home Price Insights and Single-Family Rent Index reports, both of which are updated on a monthly basis and feature national, state and metro-level data.
[1] Using CoreLogic’s public records data, an investor is defined as an entity (individual or corporate) that has retained three or more properties simultaneously within the past 10 years.
[2] Non-investors are those who do not meet the CoreLogic definition for an investor (see footnote 1). Only arm-length purchases are considered.
