Despite persistently high mortgage rates, home prices for detached houses in 93% of metro areas across the United States (out of a total of 205 metro areas) saw increases in the first quarter of this year, up from 86% in the previous quarter. The optimistic outlook on home price appreciation has attracted investors to actively enter the market, with them snatching up around one-fifth of the homes on the market and making even more substantial profits compared to before.
According to statistics from the National Association of Realtors (NAR), the median price of detached single-family homes in the United States increased by 5% in the first quarter compared to the same period last year, reaching $389,400. Among them, prices in 63 markets (accounting for 30% of the total) saw annual increases of more than ten percent, up from 15% in the previous quarter.
In early 2023, as interest rates continued to rise, many investors were deterred, leading to a nearly 50% drop in investor purchases, which was almost on par with the existing home sales volume. According to Redfin data, investor purchases were almost flat with existing home sales volume, hitting the lowest level in nearly 30 years.
However, the latest Redfin research indicates that investors are making a comeback! Investor purchases in the first quarter grew by 0.5% year-over-year, marking the first increase since mid-2022. In the first quarter, investors purchased 44,000 homes, up 0.5% year-over-year. (Here, Redfin defines investors as "any institution or entity purchasing residential real estate.")
Investors bought nearly 19% of homes listed in the first quarter of this year, accounting for about one-fifth of the market. Analysts note that while this proportion is lower than pre-pandemic and throughout the pandemic, it's the highest record in nearly two years.
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So what's driving investors back into the market? Redfin states that with home prices and rents rising again, the initial shock from the surge in mortgage rates has become a thing of the past. Consequently, investors are gradually easing off the brakes.
In March of this year, the typical home sold by investors yielded just over a 55% return, meaning an average profit of nearly $175,000. In contrast, during the same period last year, homes sold by investors were priced $146,000 higher than when purchased, representing a 46% increase. Moreover, only 5.3% of homes sold by investors resulted in losses, lower than the 13.7% in March 2023.
Analysis also found that investors not only bought more expensive homes but also claimed a historic high share of the affordable housing market. The report notes that the typical home purchased by investors in the first quarter reached $464,560, up 9.2% year-over-year. In the first quarter, investors purchased homes valued at a total of $31.3 billion, up 6.6% year-over-year.
Among homes purchased by investors, those with lower purchase prices still accounted for a significant share. Data shows that homes with lower purchase prices comprised 47.5% of investor purchases in the first quarter, while those with higher purchase prices accounted for 28.5%. It's worth noting that the most significant increase in purchasing higher-priced homes by investors has largely been driven by the expanding influence of California investors.
While investors continue to buy detached homes and multifamily properties, their purchase volume for detached homes increased by nearly 4% in the first quarter of this year. According to Redfin data, single-family homes accounted for nearly 69% of investor purchases in the first quarter.
