- Pandemic boomtowns like Phoenix and Las Vegas are seeing investors pull back as home prices fall.
- Economic uncertainty and high inflation coupled with lower buyer demand are contributing to the exodus.
- An economist thinks that homebuyers will experience less competition from wealthy investors in the future.
Investors are pulling away from pandemic boomtowns like Phoenix, Arizona and Las Vegas, Nevada, as home prices in those markets continue to fall, according to a new analysis from real estate brokerage Redfin.
Overall, investors bought $42.4 billion worth of homes in the third quarter, which is more than 26% lower than a year ago and more than 30% less than the total of $61 billion investors bought in the second quarter of 2022. have issued, Redfin discovered.
Phoenix led the country with a staggering 49% drop in investor activity in Q3, followed by Portland, Oregon and Las Vegas, which saw their investor activity drop 47% and 45% respectively. The new numbers are in stark contrast to investor interest a year ago, when real estate investors broke records for the number of home purchases they made.
In the report, Redfin defined investors as “any institution or company that purchases residential real estate” using different types of companies, such as corporate trusts, limited liability companies and family trusts. These can be small mom-and-pop house flippers who own perhaps a handful of properties, to corporate investors like Blackstone Group, who own thousands.
According to Redfin economist Sheharyar Bokhari, the data shows that investors may not return to the market for the foreseeable future as falling house prices put them at risk of losing money. In the report, Bokhari wrote that some homebuyers still on the market “will no longer face fierce competition from hordes of cash-rich investors like they did last year.”
“Investors are unlikely to make a large-scale return to the market anytime soon,” explains Bokhari. “House prices would have to fall significantly for that to happen.”
The analysis compared county sales records from January 2020 through September 2022 in 40 of the country’s most populous metropolitan areas.
One of the reasons investors are uprooting from pandemic boomtowns is that these areas face the twin threats of high inflation and falling home prices. These challenges not only make homes more expensive to renovate, but they also jeopardize the profits investors seek.
For example, Phoenix had the country’s highest third-quarter inflation rate at 13% in the third quarter of 2022, according to data from Redfin. That figure includes a more than 18% increase in lodging prices, a 40% increase in gas prices and a 12.6% increase in the price of groceries. Meanwhile, home prices in the city are down 5.4% since June 2022 to a median price of $435,000.
Data from Redfin also shows that Las Vegas home prices have fallen nearly 10% since June 2022 to a median sale price of $390,000. The story remains the same in other pandemic boomtowns, such as Tampa, Florida, where average home sales prices have fallen 6% since June. And in Austin, the median sales price is down nearly 13% since June.
Other factors, such as a volatile stock market and broad economic uncertainty, also led investors to prioritize their spending in low-priced markets such as Baltimore, Maryland, where the median home price for investors was around $146,000, according to the analysis. In addition, some flippers face further risks in the softening market due to their portfolio being over-leveraged or being out of their numbers.