Record 45.8% Drop in Investor Purchases of US Homes in Q4 2022
Investor purchases of U.S. homes fell a record 45.8% year over year in the fourth quarter of 2022, according to a report from Redfin. This was the second biggest decline in the past decade, following 45.1% during the subprime mortgage crisis of 2008. The high cost of borrowing money and the prospect of substantial home-price declines made real estate investment less attractive.
The report found that median single-family home and condo prices decreased from the third quarter of 2022 to the fourth quarter in 56% of Opportunity Zones around the country and went down at least 5% in almost half. In the second half of 2022, as the US housing market saw prices decline after a decade of almost continual growth, the same drops were reflected in areas outside of the zones in question.
Mountain West cities which saw some of the largest influxes of new residents and subsequent investor interest in 2020 and 2021 are now experiencing the largest declines in purchases. Las Vegas was first on the list with a 67% decrease, and Phoenix came next with a 66.7% decrease.
The dramatic decrease in home values last year was largely attributed to a decrease in homebuying demand due to the rapid increase in mortgage rates, which brought housing affordability to record lows. The average 30-year fixed mortgage rate was 6.36% in December—double the level from the start of 2022. At the start of February, the rates went down, providing buyers some optimism; however, they have now increased back to the same level as December.
FHA loans made up 16% of mortgaged home sales in December—the highest proportion since the start of the pandemic—while roughly one in six (15.6%) mortgaged home sales nationwide used an FHA loan, up from 12.5% a year earlier.
Despite the national market decline in the fourth quarter, signs emerged that Opportunity Zone markets were faring better than other neighborhoods; this was in line with the increases they had seen compared to the nation as a whole during the boom period. In the last few months of 2022, Opportunity Zones with larger portions saw typical values increase by a minimum of 10% both on a quarterly and yearly basis, compared to the rest of the country. Meanwhile, median values were still up year over year in almost the same portion of Opportunity Zones as elsewhere around the country.
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