Investor Purchases of Homes Are Down 45%. Here's Why That's a Good Thing

There's a reason so many buyers have struggled to purchase a home this year. Not only have mortgages gotten expensive to sign, but there's been a glaring lack of real estate inventory to choose from.

And let's face it -- if you're going to be paying a high interest rate on a home loan, you want to be able to find your dream home, or the closest thing to it. When housing inventory is low, it becomes much harder to find the type of property you want.

But adding to buyers' struggles is the fact that they commonly have to compete with real estate investors who have been known to scoop up loads of residential properties for their portfolios. Investors are able to make money on residential real estate by flipping homes and selling them at a profit or by renting them out on an ongoing basis.

But new data from Redfin shows that investor home purchases are on the decline. And that's great news for everyday buyers.

The less competition, the better

Real estate investors bought 45% fewer homes in the second quarter of 2023 than a year prior, according to a Redfin analysis of 39 of the most populous U.S. metropolitan areas. This decline drove the total number of homes bought by investors down below pre-pandemic levels.

A fair share of regular buyers have been turned off this year by expensive mortgage rates. But investors commonly don't need to turn to mortgage lenders for financing because they have capital to access.

However, home prices also happen to be fairly elevated. In July, the median existing-home sales price rose 1.9% from a year prior to $406,700, according to the National Association of Realtors. And that may be driving investors out of the residential real estate market.

Of course, investors pulling away is a great thing for buyers, because the less competition there is, the better. But it's important for buyers to realize that even with fewer investors in the fold, the competition is still pretty stiff. So it's important to take steps to get an edge.

How to beat out the competition

If you're trying to buy a home today, you may end up having to duke it out with other buyers once you find a home you really like. But there are a few things you can do to give yourself an advantage.

One easy step to take in this regard is to get pre-approved for a mortgage. This shows sellers that you're a serious buyer and that your financial picture has already been evaluated by a lender.

Another savvy move to consider is making an offer that's a bit over a seller's asking price. At a time when home prices are up, that might seem far from ideal. But let's say you're looking at a $500,000 home listing. If you can swing $515,000, that may be enough to get a seller to accept your offer on the spot rather than entertain other offers that land you in a bidding war.

Remember, once a bidding war starts, the price of the home you're looking to buy could be driven upward in a notable way. In the end, offering $515,000 on a $500,000 home might prevent the price from eventually rising to $530,000 or more.

The fact that investor home purchases are declining could spell relief for buyers who haven't given up on finding a place of their own. But it's not just investors you're competing with for the limited number of properties available today. So make sure to do what you can to edge out the competition.