Investors—from small-time flippers to Wall Street-backed landlords—helped propel U.S. home prices to record levels during the pandemic boom. But now, they’re pulling back as recession risks mount, in a move that could accelerate the market’s slowdown.
Institutional landlords are canceling contracts and getting more particular about purchases. The tech-powered home flippers known as iBuyers are slashing asking prices to clear inventory. Small-time property hounds are passing on homes they would have bought three months ago because higher borrowing costs make it harder to turn a profit.
Fear has crept into the housing market, replacing the can’t-lose optimism that attracted mountains of capital in the years after the most recent crash. After the near-doubling of mortgage rates since the end of 2021, investors are having to navigate an increasingly complex dynamic where both borrowing costs and home values are relatively high. There’s at least one potential silver lining: A pullback could help prices settle at more affordable levels.
“I really think investor activity has heightened volatility,” said Redfin Corp. Chief Executive Officer Glenn Kelman, whose brokerage company operates an iBuying business. “Having their activity slow has really changed the market. I wish it were a gentler process, but I don’t mind when prices come back down.”
Investors’ share of the overall market fell for a fourth straight month in June, according to data from Redfin. Across the second quarter, their purchases posted double-digit declines in Riverside, California, New York’s Nassau County, and Miami, the data show.
While many consumers have been priced out by the rapid run-up in mortgage rates, the remaining buyers don’t need a pile of cash to notch a winning bid, according to Veronica Franco, an agent with Keller Williams Atlanta Perimeter.
“It just gives the homeowners a better chance,” said Franco, who has had large investment firms rescind offers on homes she’s listed in recent weeks.
Scott Arnold, who represents institutional landlords as a broker with DMAX Investment Properties in Dallas, said a California-based investor canceled 20 contracts after mortgage rates jumped in June. The company lost about $3,000 per property because of deposits it put down to express interest, he said.
Arnold has been left scrambling to pacify sellers, who were faced with the unappealing prospect of relisting homes in a softening market. His firm eventually decided to purchase two of the properties to preserve relationships with the sellers’ agents.
The investors “want to reassess the market to make certain we aren’t going into a severe recession,” Arnold said. “They are waiting for the market to slide so that they can buy at a lower price. And they believe the interest rates will go back down a little bit.”