TAMPA, Fla. (WFLA) — As the housing market in the United States begins inches towards previous norms, Redfin, a real estate company, reports that the number of homes bought by investors or businesses fell by a record level of 45.8% from the end of 2021 to the end of 2022.
The report by Redfin was focused on a comparison of fourth quarter data, with the number of investor purchases changing year-over-year. Nationally, the company said a record of 39.5% of investor purchases in the fourth quarter of 2022 were “starter homes,” or smaller than 1,400 square feet.
In 2022, the percent of homes bought by investors ranged between 20% and 25%, nationally, higher than in 2021 where investor purchases were closer to a range of 16.5%. However, Tampa’s share of purchases by investors was almost 25% in the summer of 2022, down 13% at the time, according to Redfin.
Now, the share of Tampa homes purchased by investors or companies is down by a reported 50.7% compared to the previous year. Still, the number of homes in Tampa being purchased by investors is close to 21%. The housing market in Tampa alone represents what Redfin calculates to be $918.2 million.
Redfin reported the national drop in investor purchases was due to changes in the housing market.
“Investor purchases of U.S. homes fell a record 45.8% year over year in the fourth quarter as the high cost of borrowing money and the prospect of substantial home-price declines made real estate investing less attractive,” according to Redfin.
The company said it was the second largest decline in investor purchases since 2008, during the subprime mortgage crisis. Generally, home purchases in the U.S. were also down, with Redfin reporting a drop of 40.8% since the year before.
“Investor purchases slumped 27% on a quarter-over-quarter basis, the largest quarterly decline on record aside from the beginning of the pandemic,” Redfin said, shifting to a quarterly view. “That’s comparable with the 28.1% quarterly drop in overall home purchases.”
Despite the drop, Redfin said the market share for investors has stayed “steady” due to individual homebuyers waiting amid affordability concerns resulting from mortgage rate increases.
“U.S. home prices are up less than 1% year over year—compared with 15% growth one year ago—and have fallen 11% from their spring 2022 peak,” Redfin reported. “In many metros, prices are already declining on a year-over-year basis. That’s because the jump in mortgage rates last year dampened homebuyer demand.”
While the overall investor purchases of residential property were down about 46%, the level of single-family homes bought by companies had an even bigger decline, according to Redfin. They said the number of single-family homes bought dropped 49.8% while condo or co-op purchases dropped just 35.6%, and multifamily and townhome purchases fell the least, at 31.1%.
The drop in investor homebuying fell along with a drop in homes bought with cash, according to purchase data analyzed by Redfin.
“Roughly one-third (31.2%) of U.S. home purchases were paid for with all cash in December,” Redfin said. “That’s up from 28.8% a year earlier but down from the eight-year high of 31.9% hit in November.”
Amid the fluctuation in prices, affordability, and mortgage rate changes, Redfin found that 7% of home sales in December 2022 used a loan from the U.S. Department of Veterans Affairs. They said it was the highest proportion of homes purchased with this funding since July 2020.
Similarly, loans from the Federal Housing Administration were at their highest level since May 2020, with 15% of homebuyers using a mortgage loan from the FHA.
Still, Redfin reported that “the share of homes bought with cash remains elevated above pre-pandemic levels because mortgage rates are high, averaging 6.36% in December.”
The company said buyers who can use cash are “more motivated to” since it means they won’t have to pay an interest rate for a mortgage.
“The typical monthly mortgage payment is up about 25% from a year ago, when rates were around 4%,” Redfin said.
Current mortgage rates are clocking in over 6%, according to data from federally-backed mortgage company Freddie Mac. A new measure of the rate for a 30-year fixed rate mortgage comes from the company every Thursday.
Concern over mortgages’ costs have contributed to declining home sales, as of January 2023.
According to Realtor.com, the homes under contract have fallen by 31.9% since January 2022. While they said it was lower than the near 37% decline in December, increased mortgage rates are the wind by which the market changes direction.
“While mortgage rates are down from October and November 2022, higher rates and home prices compared to January of last year have increased the monthly cost of financing 80% of the typical home by nearly $650 (+49.6%) compared to a year ago,” Realtor.com said.
Going further, the company said January’s fluctuations “outpaced” rent growth and the inflation level for the start of the year. Even the number of new listings for sale fell 5.4%, year-over-year, with new listing levels 25% below the pre-pandemic market.
When it comes to the housing market though, market trends are complicated.
Fannie Mae, another federally-backed mortgager, reported a third month in a row of positive housing sale sentiments in the U.S. as of January. However, sentiment is still low compared to previous years. Only 17% of buyers feel it’s a good time to buy a home.
“January’s HPSI results showed that consumer sentiment toward the housing market remains subdued by historical standards,” Doug Duncan, Fannie Mae Senior Vice President and Chief Economist, said. “For consumers, the same affordability issues are persisting, as they continue to indicate that high home prices and high mortgage rates make it a ‘bad time to buy’ a home.”