Housing is so unattractive that investor purchases have plummeted 45%

• Real estate investors bought 45% fewer homes in the second quarter than a year ago, Redfin reported.
• That outpaced the 31% overall dip in home sales, and was the biggest drop since 2008, excluding the first quarter.
• Investor purchases have fallen annually for four consecutive quarters.

The US housing market isn't affordable or attractive to most Americans — and that includes real estate investors.

Redfin reported Wednesday that investor purchases of homes dropped 45% in the second quarter compared to the same time last year. Excluding the first quarter, when the annual decline was 48%, that's the steepest plunge since 2008. 

And the second-quarter decline in investor purchases outpaced the 31% drop in overall home sales. It also marked the fourth consecutive quarter of annual declines.

Redfin said relatively cool housing and rental markets have made investing in homes less attractive. 

Investors' market share in real estate continued to fall, hitting 16% in the second quarter. That's further below the all-time high of 20% in the first quarter of 2022, when the home-buying boom of the pandemic still had legs left.  

"Offers from hedge funds have dried up; I haven't received an offer from one in a long time, except unrealistically low offers," Las Vegas Redfin agent Shay Stein said in the report. "From mid-2020 until early 2022 when interest rates started going up, hedge funds bought up a ton of properties and immediately turned them into rentals, pricing out local buyers. Now a big portion of our homes are owned by investors, but they're not adding to their portfolios."

Total purchases by investors ticked up from the prior quarter to 50,347, but that was the fewest of any second quarter in seven years, excluding the start of the pandemic.

Investors are also selling less, with 8% of new listings owned by investors, compared to 13% at the end of 2021, according to Redfin.

All this comes as mortgage rates are still hovering near 7% amid low inventory and general uncertainty about the trajectory of the market and economy. 

"Home flippers may be slower to come back," Redfin economist Sheharyar Bokhari said. "That's mainly because mortgage rates are unlikely to decline significantly in the short term, which will keep homebuying demand relatively low and discourage flippers. Plus, investors have lower-risk places to park their money right now than real estate, with high yields in the bond market."