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Institutional investors may be scaling back in some markets

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Institutional investors bought fewer homes during the fourth quarter of 2022 compared with the same period of 2021, but their market share held steady.

Those were among the conclusions of a report by Redfin Corp. Its analysis of 40 major U.S. housing markets showed investor purchases plummeted 45.8% annually in the fourth quarter of 2022, a record drop. Of these areas, only one – Baltimore – saw an increase in investor purchases, and it was a paltry 1.4% year-over-year.

Markets in the south and those that saw a large bump in population during the pandemic experienced the most notable declines in purchase activity. Redfin reported five markets had drops of more than 60%. The list included Las Vegas (-67%), Phoenix (-66.7%), Nassau County, NY (-63%), Atlanta (-62.8%) and Charlotte (-61.9%).

The ratio of homes bought by investors declined somewhat during the fourth quarters of 2021 and 2022. Redfin reported investors accounted for 17.8% of home purchases in Q4 2022 in the metros they track, down from Q4 2021 when their share was 19.4%. During last year’s third quarter, the figure was 17.6%.

In a National Association of REALTORS® report published in May 2022, that group said institutional buyers purchased 13.2% of residential properties in 2021, up from 11.8% in 2020. (Figures for 2022 have not been released.)

NAR’s report showed the top five states with the highest share of institutional investor purchases in 2021 were Texas, Georgia, Oklahoma, Alabama and Mississippi.

CoreLogic Inc. also reported a pullback by institutional investors. The firm’s chief economist, Selma Hepp, said institutional investors are scaling back more dramatically than small investors, described as groups that own three to 10 properties. She also noted they tend to be cash buyers so they are not as sensitive to fluctuating mortgage rates.

Bankrate said the large investment companies are “exacerbating the home-inventory shortage by buying up the most affordable properties and renting them out, making it harder for individuals and families, especially first-time homebuyers to get onto the housing ladder.”

Such investors can have an outsize impact on home inventory, both nationally and locally. Their willingness to accept properties as-is makes their offers more appealing than from individual buyers who may need to rely on financing or contingencies.

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