Despite ongoing price increases in the residential real estate market, a recent report from CoreLogic indicates a slowdown in buying activity among real estate investors during the summer months. While investor engagement had remained robust in recent years, CoreLogic’s findings contrast with Redfin’s recent data, which reported an uptick in investor activity.
At the beginning of 2024, investors accounted for 29.8% of residential real estate purchases. However, by June, this figure had dipped to 23.4%, marking the lowest level of investor activity in two years. This decline represents a notable shift from January, which had recorded the highest level of investor participation since CoreLogic began tracking this data in 2010.
Investor Purchase Activity: A Deeper Look
The total number of investor purchases dropped from 112,000 in June 2023 to 80,000 in June 2024. The peak activity was recorded in June 2021, with 149,000 purchases. While the recent downturn is concerning, it may be seasonal, as some investors typically reduce their activity during the summer months. Additionally, many investors are likely waiting for mortgage rates to stabilize before re-entering the market.
With mortgage rates recently reaching their lowest levels in two years, there is potential for renewed investor activity.
Investor Competition with Homebuyers
Investors have faced criticism for competing with first-time homebuyers, particularly in the low-price tier where many new buyers start. Currently, investors represent 29% of home purchases in this segment. However, most investors in the top 20 major metropolitan areas are small (owning fewer than 10 properties) or medium-sized investors (owning 10 to 100 properties), rather than large institutional landlords.
In Atlanta, the most significant investor market, investors account for 5% of all home purchases. In contrast, mega-investors hold around 1% of the market share, with small investors making up about 18%.
Top Markets for Real Estate Investment
The analysis shows that the Sunbelt remains a prime area for real estate investors. Recent data identifies Dallas and Houston as the top cities for both investor and non-investor purchases, followed by Atlanta, Phoenix, and Los Angeles. Regions like Florida, California, and parts of the Northeast experienced the smallest decline in investor activity.
Future Prospects for Investors
While recent data suggests a slowdown, it does not indicate a permanent behavioral shift among investors. Many are purchasing properties to hold them for income rather than to sell for quick profits. Despite lower mortgage rates, they remain above historical lows, compounded by increasing prices for existing homes. This situation indicates that the pool of renters will likely stay substantial, even as buyer demand may dwindle. CoreLogic economist Thomas Malone noted that while buyer demand might be low, rental demand will likely remain robust, given the limited chances of significant price reductions in the near future.
The top 10 markets for investors are primarily located in the South, including Tampa, Miami, Orlando, and Jacksonville in Florida, along with Austin and Dallas. Many of these cities also appear on lists of markets where homes are selling below asking price, providing opportunities for investors focused on buy-and-hold strategies.
Alternative Investment Strategies
Investors looking to enter the real estate market without the responsibilities of being a landlord can explore platforms like Arrived Homes, which offers access to short-term loans backed by residential real estate. This approach provides an opportunity for investors to earn net annual yields between 7% and 9%, with a low minimum investment of just $100.
As the residential real estate market continues to evolve, investors will be closely monitoring mortgage rates and market conditions to determine when to return to the buying arena.
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