SEATTLE – Investor home purchases fell 45% year-to-year in the second quarter, outpacing the 31% drop in overall home sales, according to a Redfin report. It’s the second-biggest decline since 2008 after a 48% drop in 2023’s first quarter. The report includes 30 of the largest U.S. metros.

Investors are now buying fewer homes than they did before the pandemic – roughly 50,000 homes in the second quarter, the fewest of any second quarter (2Q) in seven years. The slowdown follows a pandemic-era boom in investor activity driven by record-low mortgage rates and huge homebuying and rental demand – opportunities for investors to make a lot of money.

“Offers from hedge funds have dried up; I haven’t received an offer from one in a long time, except unrealistically low offers,” says Las Vegas Redfin Premier agent Shay Stein. “From mid-2020 until early 2022 when interest rates started going up, hedge funds bought up a ton of properties and immediately turned them into rentals, pricing out local buyers. Now a big portion of our homes are owned by investors, but they’re not adding to their portfolios.”

Investor purchases declined 65% year over year in Las Vegas, Jacksonville, and Phoenix, the biggest drops of the metros in the analysis. Investors are pulling back quickly from the Sun Belt and Florida largely because those places had an even bigger boom in homebuying demand than the rest of the country in 2021 and early 2022. Now they’re cooling fast.

The drop is almost as big in dollar terms. Investors bought a total of $36.4 billion worth of homes in 2Q, down 42% year-to-year. It’s still above pre-pandemic levels but dropping closer to it: Investors spent $34 billion in the 2Q 2018, and $31.9 billion in 2Q 2019.

In terms of market share, investors bought 15.6% of homes sold in the U.S. during the second quarter, down from 19.7% a year earlier and a record high of 20.4% in 1Q 2022.

Why the investor decline?

Stubbornly high home prices and mortgage rates, limited inventory and widespread economic uncertainty dampened housing demand and suppressed overall home sales, factors that deter investors even more than homesteaders because they’re in it purely for the potential to make money by flipping homes or renting them out. When housing demand drops, investors are less motivated.

“Moving forward, the investors who do come back may be more focused on scooping up rental properties than flipping homes,” says Redfin Senior Economist Sheharyar Bokhari. “All signs point to the rental market remaining relatively strong. Home prices and mortgage rates are high enough to motivate would-be first-time homebuyers to continue renting. The typical U.S. asking rent remains quite high, just $16 shy of its all-time high, so investors who are landlords stand to earn money.”

However, “home flippers may be slower to come back,” Bokhari adds, “mainly because mortgage rates are unlikely to decline significantly in the short term.”