A number recently stuck out to us: The February 2024 edition of the National Association of Realtors “Existing-Home Sales Report” reported that of the existing homes purchased in the month, individual investors made up 21% of those purchases. The Wall Street Journal also took notice. We track this number every month, and we had not seen it above the 20% mark in a while, so we dug deeper.
Share of Individual Investors
The chart below shows the “% of existing homes purchased by Individual Investors or second-home buyers” in a given month, since January 2020. Note this percentage only exceeds 20% one other time in the last 4 years:
We know that investor activity grew in the low interest rate environment – money was relatively cheap so more individual investors were able to buy homes and create a return. But what could explain this more recent uptick?
Overall Rate of Existing Home Purchases
First, let’s look at the overall rate of existing home purchases since 2020. The chart below shows the dramatic decrease in existing home purchases between 2022 and 2023. Between January 2022 and December 2023, the rate of existing homes purchased was down 40%.
The chart shows a recent uptick over the last 3 months (December 2023-February 2024), but that same uptick happened between December 2022 and February 2023 only to see the rate decline the rest of the year. Let’s look at a few other factors to understand why investor activity may be increasing.
Median Price
Included in the Existing-Home Sales Report from NAR is the Median Price of those existing homes purchased. This metric is charted below, and what stands out is the apparent return to seasonality that we saw in 2023 and that we expect to see in 2024. This seasonality implies that prices are low today relative to the next 4 months, so if you did want to buy a home – this would be the time to do it. Could this have brought in more investors?
Days On Market
An even more compelling number is the Days On Market metric that is reported by realtors to NAR. The chart below shows the dramatic increase in Days On Market between May 2023 and February 2024 for existing home sales – resulting in the highest Days On Market reported since January 2020.
A logical conclusion here is that negotiations are back on the table when shopping for homes. With longer days on market, the market is likely to see more price concessions and investors can find more opportunities in an environment like this.
First-Time Buyers
Finally, did individual investors crowd first-time buyers out of the market? It doesn’t appear so. The chart below shows a consistent representation of first-time buyers for almost 3 years now, ranging from 25% to 30% of existing homes purchased within a given month.
Summary
Individual investor activity went up in February 2024 to a level only seen one other time in the last 4 years… why?
- Median prices appear to be settling into a more predictable pattern of seasonality – prices are lower in the winter and will be higher in the spring and summer.
- Days on market has reached a level not seen since January 2020, suggesting more opportunities to find deals and negotiate with sellers in the market
Whether this is a trend or an anomaly remains to be seen – we will continue to monitor these metrics to find out.