Large Investors Slowed Home Purchases by Late 2022

Institutional investors, which acquired or built more than 700,000 single-family homes, are reducing their purchases as prices rise and rent-growth slows.

The single-family rental business has grown steadily since the Great Financial Crisis, as Wall Street investors such as Invitation Homes, Blackstone, KKR and Tricon Residential buy houses across the country. Large investors have bought more than 700,000 homes.

An analysis by Realtor.com shows that investor purchases in the housing market accounted for 8.2% of monthly sales in December 2022, down from a high of 8.9% in February. While investor purchases remained greater than 8.5% through June of last year before sliding a little, they picked up pace again starting in October.

While small investors have for years dominated housing investment activity, growth of purchases by large investors picked up from 2021 to 2022, with activity from larger investors outpacing smaller investors in 2021 and the first half of 2022. 

Why Are Large Investors Pulling Back?

The pandemic saw a shift in housing demand away from larger cities, and with investors driving up prices, would-be homebuyers were effectively priced out. Unlike many homebuyers, who would rely on a mortgage to finance a home purchase, large investors could offer all-cash deals to sellers. In the last two years, about 85% of large investors bought properties with cash, as opposed to 67% of small buyers, according to Realtor data.

As housing demand increased and rents rose, the share of investment purchases in real estate from larger investors jumped to a high of 31.8% in July 2022 from 16.7% in July 2020.

With cooling rental growth, investors had less incentive to continue renting their homes as opposed to selling them. The gap between investors buying and selling of homes was about 2,800 more homes bought than sold, about a fifth of what it was during the June 2022 peak. 

“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. Despite easing back, investor activity still remained high in 2022, especially in more affordable markets in the South and Midwest,” said Realtor Research Data Analyst Hannah Jones.

For instance, in Memphis, nearly a quarter of the homes sold in 2022 were purchased by investors. St. Louis, Missouri, followed at 21.1%.

What Does This Mean For Homebuyers?

The shift has allowed smaller investors to compete again, but investors are now finding themselves competing with buyers more often than meeting sellers' expectations. Now, high mortgage rates and lack of inventory continue to be deterrents for non-investor buyers even as investor home buying slows down.