According to a report by Business Insider, real estate investors have been leaving the market at an almost record pace over the course of the past year. The total number of home purchases by real estate investors fell by 48.6% between the first quarter of 2022 and the same time period in 2023. This unusual exodus of real estate investment has been blamed on high interest rates, declining rents, and falling home prices, which has eaten into their profitability.
The Single Largest Decline Since 2000
According to Redfin, the real estate market saw a massive drop in the number of home purchases by investors, falling by 48.6% over the course of a single year. This was the single largest decrease in real estate investment that had been recorded since 2000, the year when Redfin first began tracking these statistics. The decline in purchases by investors outpaced even the overall decline in purchases from the rest of the market during the same period, which fell by 40.7%.
Higher Costs Due to Rising Interest Rates
One of the big drivers of this trend has been high interest rates, which have been rising generally due to efforts by the Federal Reserve to combat inflation. As a result, mortgages are far more expensive now than they were at the same time last year, making some investors uncertain about the notion of investing into more properties. This also makes it harder to sell properties, as some buyers may balk at buying a home at over 6% interest that they may have been able to purchase for 5% or lower just one year ago.
Low Rents and Falling Home Prices Cut Into Profits
The overall decline in home prices and rents have also become a hindrance to real estate investment. This is because it has become harder to profit from those investments without being able to charge higher rents or resell for a higher value. Without the ability to reliably profit from an investment, many investors simply do not want to put their money into new properties.
The Near Future of Real Estate Investment
In all likelihood, many of these trends are likely to continue for some time. Inflation remains relatively high, so interest rates are also likely to remain high, and prices may trend downwards as homebuilders continue to build new housing to meet existing demand. However, this increase in new homes may also spur new people to purchase property, which may help the market to recover and lead to new investment.
At Liongate Homebuyers, we assist our clients with a variety of services related to buying and selling real estate, including purchasing homes for cash. We have experience handling real estate financing, especially for developers and house flippers. If you are interested in selling your home for cash, please contact us at 516-548-6553, or visit our contact page.
