Investors purchased 8.2% of all homes in 2022, still above pre-pandemic levels
Even as the overall housing market slowed at the end of 2022, investors were still scooping up a near record-high share of homes for sale, according to a report released Monday by Realtor.com.
In December 2022, investors purchased 8.2% of all for sale homes, down from an all-time high of 8.9% set in February 2022, but still above pre-pandemic levels. The December 2022 share was up 0.4 percentage points year over year, and it was the highest share of investor purchases recorded in the month of December, according the Realtor.com.
The report is based on the analysis of deed recordings from January 2000 to December 2022, both nationwide and in 263 metro areas, which had more than 100 investor sales for the year ending in December 2022. The report only examined single-family, condo and townhouse properties, and did not include any data on multi-family properties.
While the share of investors remains elevated, investor activity has been on a similar trajectory in the broader market. After dropping in early 2020 due to restrictions and uncertainty caused by the COVID-19 pandemic, investor activity rose 52.9% year over year in 2021. As interest rates rose and the housing market cooled in the second half of 2022, investor activity slowed, with the count of investor purchases falling 35.4% year over year in December 2022.
However, while both investor and non-investor purchase activity cooled in 2022, non-investor sales dropped off earlier than investor sales, with annual decreases starting in March 2022 for non-investors and September 2022 for investors. This resulted in non-investor purchases falling 16.6% year over year, while investor purchases still rose 6.4% compared to 2021.
In addition, as the housing market became less competitive in 2022, the share of investors purchasing homes with all-cash dropped to 68.9%, compared to 72.3% in 2021.
Traditionally, small investors (who own 10 or fewer homes) consistently purchase the largest share of homes, but growth activity from larger investors outpaced smaller investors in 2021 and during the first half of 2022. From July 2020 to June 2022, larger investors grew their share of investment purchases from 16.7% to 31.8%. The report attributes this to the early pandemic housing market boom.
But, as home prices and interest rates rose and rent growth cooled in the second half of 2022, large investors pulled back, with their share of investor purchases dropping to 13.3% in December 2022. During the same time, the small investor purchase share rose from a low of 52.6% in October 2021 to 72.8% in December 2022, up 17.7 percentage points year over year.
Although cooling rent growth has increased the incentive for investors to sell their properties instead of renting them out, home buyers are still more likely to compete with investors than sellers. In December 2022, 2,800 more homes were bought by investors than sold by investors, down from a 13,000-home gap in June 2020.
“With mortgage rates rising and rent growth slowing, many investors, especially larger ones, pulled back last year from the feverish rate in which they bought and sold homes during the early pandemic boom years, enabling smaller investors and buyers to better compete,” Hannah Jones, Realtor.com’s research and data analyst, said in a statement. “Despite easing back, investor activity still remained high in 2022, especially in more affordable markets in the South and Midwest.”
In the South, the average investor market share was 12.2% in 2022, up 2.5 percentage points from the year prior, while in the Midwest, investor market share was 9.3% in 2022, up 1.7 percentage points from 2021. The West (6.8%) and the Northeast (6.1%) both recorded a 1.6 percentage point annual increase in investor share in 2022.
When broken down by metro area, Memphis, Tennessee recorded the greatest growth in investor interest in 2022, with nearly 25% of homes sold in 2022 being purchased by investors. St. Louis, Missouri (21.1%); Indianapolis, Indiana (19.2%); Birmingham, Alabama (17.7%) and Kansas City, Missouri (17.0%) rounded out the top five metros seeing the most investor activity in 2022.
- Investors purchased a large number of homes throughout the pandemic, accounting for between 8% and 9% of all home sales during much of 2022.
- The share of investor purchases was significantly higher in cities like Memphis, St. Louis and Jacksonville.
- Smaller investors remain very active in the market while larger investors started heading toward the sidelines over the winter.
The pandemic housing boom led to a buying spree from regular people and investors alike, sending home prices across the country skyrocketing. Regular buyers with financing often found themselves pitted against deep-pocketed cash buyers for the most coveted homes in the hottest markets.
But where were investors most active? And how much of an impact did they have on the overall market?
The new report from Realtor.com offers an extensive look at investor activity before and during the pandemic and found that not all investors are the same — and not all markets experienced similar levels of investor activity. Overall, investor purchases peaked in February 2022 when investors accounted for nearly 9% of all home sales.
The report looks specifically at investors who purchased homes to rent out and categorizes them as small investors with under 10 properties, medium-sized investors with between 10 and 50 units, and large investors with over 50 properties. Home flippers and iBuyers were excluded from the findings, the report notes.
The hottest markets for investors are in the Midwest and Southeast
While places like Boise, Austin and Phoenix were prime markets for relocating buyers during much of the pandemic, investors were drawn to more affordable markets in the Midwest and to rapidly appreciating metros in Florida.
The market that saw the most investor activity last year was Memphis, where nearly a quarter of all homes sold in 2022 were purchased by investors. In St. Louis, 21% of last year’s home sales were to investors, while investors took 19% of the home sales in Indianapolis and 17% in both Birmingham and Kansas City.
In Florida, the Tampa area, Lakeland and Jacksonville were also hot markets last year, witnessing significant levels of investor purchases. In Jacksonville, the surge of investor home purchases has been cited by the city council as a key contributor to the city’s affordability crisis.
But it’s the reasonable purchase price combined with steady rent growth that has drawn investors of all sizes to these particular markets, Realtor.com Economic Research Analyst Hannah Jones told Real Estate News.
“A lot of the markets where investors are really active right now are these more affordable markets where home prices didn’t accelerate during the pandemic like they did in other areas,” Jones said. “Some of the much more expensive markets that might have been more popular early in the pandemic have gotten so expensive that you might no longer see a return on the investment.”
Large investor activity declined significantly in 2022
In terms of all investor buying activity, larger investors account for a smaller share of property purchases compared to the vast pool of smaller investors who, as a group, scoop up large numbers of homes. But large investors became more active during the pandemic, and their share of total investor purchases peaked at nearly 32% in June 2022. By December 2022, however, that share had fallen below 14%.
Surprisingly, the Realtor.com data shows that small-time investors were actually more active and had a bigger share of all investor purchases before the pandemic started than during the first year or two. But even at their low point, small investors still accounted for roughly 55% of all investor purchases in 2021 and 2022. More recently, that percentage has shot upwards to just under 73% in December 2022.
The rise of the cash buyer became a common trope during the pandemic. Investors are more likely than a typical buyer to purchase a home without financing, and in 2021, over 72% of investors bought a property using cash. In November of that year, nearly 74% of investors bought in cash — the highest level in seven years, the report said.
But as the market cooled in 2022, the share of investors using cash to purchase a property fell, and by December was less than 67%, the lowest share in nearly 25 years. That change is likely to due to larger — and more well-capitalized — investors exiting the market, according to the report.
Even in markets with a high percentage of investors, those investors aren’t generally competing with each other, but with regular homebuyers. And they’re buying more homes than they’re selling, though the gap is narrowing. In June 2022, investors purchased 13,000 more homes than they sold, which was the high point during the pandemic, the report said. By December 2022, that number fell to 2,800 more homes bought than sold by investors.