The City Where Investors Stopped Buying Houses

The residential real estate market posted two of its best years in decades in a period that began to end in the third quarter. Fueled by Americans who became free of working from offices and could move, and mortgage rates below 3%, demand for homes drove prices in many markets up by over 20% year over previous year. The upswing allowed some Americans to buy homes and resell them at large profits quickly. That activity has slowed in many cities as home prices drop. In Seattle, home investing has all but disappeared.

[nativounit]

A new research paper by Realtor.com titled “Mom-and-Pop Real Estate Investors Are Pulling Way Back. Here’s Where—and Why It Matters”. It separates these buyers from large institutions that make similar investments. The study’s author looked at homes that were bought using a mortgage and in a few markets, buyers who used cash. These homes were used as rental properties or flipped for a profit. One sign of the change in this activity was “Fewer than 1 in 17 mortgages is being used for an investment purchase, down from around 1 in 12 a little less than a year ago.”

Seattle was the city with the largest drop in homes bought for investments. A year ago, these were one in 20 purchases. That has dropped to one in 30. Home investors have been priced out of the market. Realtor.com Matthew Gardner, the chief economist for Seattle-based Windermere Real Estate., said, “In markets like Seattle, which have gotten so expensive, where buyers are paying $800,000 to $900,000, the rent required to cover that is going to be $6,000 or $7,000 per month”.

[wallst_email_signup]

As mortgage rates rise above 6%, and the U.S. economy slows and may move into recession, the risk for home investors will only grow. Seattle will go from being an exception to market trends to the rule.