Is the recent drop in investor purchases a seasonal fluctuation or a harbinger of a permanent decline?
Investor activity in the housing market remained high in the first quarter of 2024, but the second quarter of the year saw investor activity take its first step back in two years.
In January, the share of single-family purchases made by investors was 29.8%, but by June, this share had declined 5 percentage points to 23.4%. June’s investor percentage was the lowest in two years and was equivalent to May’s numbers. January’s number was at an all-time high based on CoreLogic’s data that goes back to 2010.
The decline in investor share that began in March 2024 is apparent in Figure 1, which shows the share of home purchases made by investors since January 2019. That said, the investor share still sits well above where it was prior to the COVID-19 pandemic, when it consistently oscillated between 15% and 20%.
The decline since March is sharp, but it is not clear that it will last. This drop could just be a seasonal movement that comes from buyers being more active during the summer months.
Keep Pace With the Property Market
Whether the slump persists will be determined by whether buyers remain active this fall when interest rates are anticipated to drop.
How Do Home Investors Influence Market Dynamics?
Figure 1 also shows monthly price appreciation. Investors are often suspected of increasing prices, but their connection in the past few years has been loose.
The only window where the two seemed to move together was mid-2021 through mid-2022, when both prices and investor share surged upward at an unprecedented rate. Outside of this period, the two variables don’t seem to move together. Of course, this is simply the correlation between the two, and we do not know what would happen to prices should investor purchases return to their pre-2021 levels.
Investors bring additional demand to the market, but not additional supply, so they impact prices. Research is limited on how significantly1 they impact prices. Still, there is research showing that investors made substantial contributions to the price recovery from 2007-142, so there is a plausible, but not yet substantiated, case to be made that investors help prevent sizable drops in prices after interest rate increases slow down the market.
Investors Reduced Purchases From Peak
Figure 2 illustrates the number of U.S. home purchases made by both investors and non-investors through June 2024. Investors made 80,000 purchases in June 2024, compared with 112,000 in June 2023, and a nearly 50% percent drop from the high of 149,000 purchases in June 2021, when interest rates were still low. Overall, the level of purchase activity seen through the first half of 2024 seems more comparable to pre-pandemic investment activity.
Investors mostly buy low-priced homes, but they are still active in higher-priced tiers. Figure 3 shows investor shares by MSA price tier4.
In June 2024, investors made 29% of home purchases in the low-price tier, 22% of medium-priced home purchases, and 21% of high-priced purchases. Investors favoring lower priced homes is in line with historical trends. However, their presence in this tier is still elevated when compared to levels seen prior to the pandemic.
This trend is concerning for first-time homebuyers, who often look in the same tier and are likely facing increased competition from investors. However, decreased affordability may also be keeping first-time buyers in the rental market, and investors are stepping up to fill the gap.
The metros with the highest levels of investor purchases are primarily those with the highest populations. However, it is not a perfect correlation.
Dallas and Houston are in the top spots for both investor and non-investor purchases. Atlanta, which is in the third spot, had higher levels of investor purchases despite having similar levels of non-investor purchases to Chicago.
Los Angeles and Riverside, California have very low transaction volumes for their population size, but both are ranked towards the top of the list for investor purchases.
Source: CoreLogic Public Records Data, 2024
Institutional Home Ownership vs Mom-and-Pop Investors
Figure 5 shows the investor share for the same metros in Figure 5 but broken down by investor size. In all these markets, most investors are small (defined as owning less than 10 properties at the time of purchase) or medium (owning between 10 and 100). Large (100-1000 properties) and mega (1000+ properties) investors make up a very small share of total purchases.
Atlanta, for instance, has by far the highest share of mega investors, but they only represent 5% of total purchases. Indeed, the mega investor share amongst the top 20 metros is just over 1%, and the average large investor share is just under 2%. The average small investor share, however, is about 18%.
In all U.S. states, investor share has declined. Figure 6 shows how much the investor share has declined by state from January to June.
The smallest declines were seen in the Northeast, as well as the states of Florida and California. In each area, investor share fell between 1% and 4%.
The strongest declines are in the Mountain-West and the lower-Midwest, with states such as Idaho and Kansas. These are markets that, historically speaking, have more extreme seasonal fluctuations. This data supports the idea that the decline is a seasonal fluctuation, since it is expected that fewer owner-occupied buyers are in these areas in fall and winter.
The Future of Home Investment Remains A Good Bet
Overall, although the investor rate has dropped and CoreLogic data anticipates further drops for the remainder of 2024 into 2025, investment seems poised to remain above pre-pandemic levels for some time.
There also seems to be little chance of prices falling substantially in the near future, so buyer demand will likely remain low while rental demand will remain high. In addition to unaffordability giving investors a good reason to stay in the rental market, higher insurance premiums from climate risk will likely give investors an opportunity to move into risky markets.
CoreLogic’s Office of the Chief Economist offers the latest data, insights and commentary on U.S. housing market trends, which are updated frequently and available here.
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[1] Conversely, investors should in theory decrease rents when they purchase more homes, since that adds to rental supply.
[2] Lambie-Hanson, Lauren and Li, Wenli and Slonkosky, Michael, Leaving Households Behind: Institutional Investors and the U.S. Housing Recovery (January, 2019). FRB of Philadelphia Working Paper No. 19-1
[3] Non-investors are those who do not meet the CoreLogic definition for an investor (see footnote 1). Only arm-length purchases are considered.
[4] Price tiers pool together all MSA sales for the month and divide them into thirds based on sales price.
