Investor home purchases drop 30% as rising mortgage rates cool housing market

Investor purchases of U.S. homes fell 30% in the third quarter, the biggest drop since the 2008 financial crisis, as rapidly rising mortgage rates cool the once-hot market. housing market.

Companies bought about 65,000 homes in cities tracked by property brokerage Redfin, up from 94,000 homes in the same period a year ago, according to new analysis released Tuesday. It marked the worst quarterly decline in more than a decade, with the exception of the second quarter of 2020 when the pandemic brought home buying activity to a screeching halt.

In total, investor purchases accounted for 17.5% of all homes sold, down from 19.5% in the second quarter, as companies pull back on the prospect of a substantial drop in prices.

“Investors are unlikely to return to the market anytime soon. House prices would have to fall significantly for that to happen,” said Redfin chief economist Sheharyar Bokhari. “It means regular buyers who are still in the market no longer face fierce competition from hordes of cash-rich investors like they did last year.”


Homes in a housing estate in Atlanta, Georgia, United States, on Sunday, November 1. 13, 2022. (Photographer: Elijah Nouvelage/Bloomberg via Getty Images/Getty Images)

Nationally, home prices rose just 3% year-over-year, according to Redfin, the slowest annual growth since 2020. In some markets, prices are already well below what they were just a year ago.

The interest rate sensitive housing market has begun to calm significantly in recent months as Federal Reserve measures to tighten policy at the fastest pace in three decades. Policymakers have already approved six consecutive interest rate hikes, including four 75 basis point increases in June, July, September and November, and have shown no sign of pausing as they try to crush inflation stubbornly high.

home loan

A For Sale sign is displayed in front of a property in Monterey Park, California on Aug. 28, 2019. Feb. 16, 2022. (Photo by Frederic J. Brown/AFP via Getty Images) (Photo by Frederic J. Brown/AFP via Getty Images/Getty Images)

The average rate for a 30-year fixed mortgage fell to 6.61% in the week ending November. 17, significantly lower than 7.08% the previous week, according to recent data from mortgage lender Freddie Mac. Yet it is significantly higher than just a year ago, when rates stood at 2.98%.

Painfully high inflation and rising borrowing costs have already proven to be a deadly combination for the housing market, forcing would-be buyers to cut spending.

Analysts are warning of a rapid slowdown in the housing market, with home prices expected to fall by up to 20%, according to analysis by Dallas Fed economist Enrique Martínez-García.

Martínez-García said the Federal Reserve’s efforts to slow housing demand could ripple throughout the economy: a “pessimistic” scenario in which the central bank continues to aggressively raise interest rates and prices fall between 15% and 20% could reduce personal consumption spending by as much as 0.5 to 0.7 percentage points, a data point that measures inflation-adjusted spending.


“Such a negative wealth effect on aggregate demand would further constrain housing demand, deepen the price correction and trigger a negative feedback loop,” he warned.

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