Small investors remain committed to US home assets, but flipping eases

Small investors in U.S. residential real estate have shown resilience despite affordability challenges, according to an analysis of the market.

Data from CoreLogic reveals that the share of single-family home buyers who were investors increased in the third quarter of 2023 with 26.8% in July, 27.2% in August, and 28% in September. The firm’s economist Thomas Malone says it would not be surprising for the share to exceed 30% when fourth quarter data is available, especially as owner-occupiers tend to be less active in this quarter.

While the 2019 and 2020 data shows that investors made up less than 20% of single-family home buyers, since 2021 the percentage has remained around one quarter.

However, in a recent intelligence report, Malone points out that the number of transactions shows a different story with bumpy stats over the third quarter, from 95,000 in July to 105,000 in August, and 84,000 in September. The previous two years had seen consistent six-figure totals each month.

Malone’s analysis of the data also reveals that large investors (owning 100-999 homes) and mega investors (owning 1,000 or more homes) decreased their activity in the third quarter of 2023 to between 8,000 and 10,000 single-family home purchases per month. This is less than half the total for mega-investors in 2021 and 2022. Each of these groups held market shares of around 10%.

“Despite the overall investor share remaining very high, the mega-investor surge appears to be winding down,” noted Malone.

Small investors (owning 3-9 homes) had a 45% market share and increased their transactions by around 5,000 above the 2019 level for this segment. The medium segment (owning 10-99 homes) was almost unchanged with a 36% share.

FLIPPING DECREASES

The figures show that flipping activity was lower in the third quarter of 2023 than in the previous four years.

Just 13% of those who bought a single-family home in in March 2023 resold by the end of September. This compares to 17% in 2022, 2021, and 2020, and 15% in 2019.

“Given the return of positive home price appreciation, it is possible that flipping activity might regain steam in the next few months,” Malone suggested. “That said, higher interest rates can deter flippers, given that investors will have to make larger monthly payments.”

The muted activity from mega-investors is reflected in the iBuyer stats which were down 80% compared to two years earlier.

Two states emerged as the two most popular with home investors in the third quarter of 2023.

California and Texas are home to 13 of the top 20 U.S. metropolitan statistical areas by investor activity, led by San Jose, California (46%) and also including Los Angeles, McAllen, and El Paso.

Malone says that the low mortgage rates seen between 2020 and 2022 could be propping up small home investors.

“Those rates allowed many existing homeowners to refinance their mortgage to more favorable terms, increasing the chances that they rent out their existing home when they move rather than sell,” he wrote in his analysis.  “This trend is happening in the context of rising mortgage rates and prices, both of which are pushing potential first-time homebuyers who are unable to afford a down payment back to the rental market.”