Investor home purchases fell 45% from a year earlier in the second quarter, outpacing the 31% drop in overall home sales. That’s the biggest decline since 2008 with the exception of the quarter before, when they dropped 48%. The decline comes as this year’s relatively cool housing and rental markets makes investing in homes less attractive than it was during the pandemic-driven homebuying frenzy of 2021 and early 2022. […]
This marks a retreat from a boom in investor activity during the pandemic, which was driven by record-low mortgage rates and huge homebuying and rental demand, creating opportunities for investors to make a lot of money.
“Offers from hedge funds have dried up; I haven’t received an offer from one in a long time, except unrealistically low offers,” said Las Vegas Redfin Premier agent Shay Stein. “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.”
In dollar terms, the drop in investor purchases is almost as big. Investors bought a total of $36.4 billion worth of homes in the second quarter, down 42% from a year earlier. That’s still above pre-pandemic levels, but dropping closer to it: Investors bought a total of $34 billion in the second quarter of 2018, and a total of $31.9 billion in the second quarter of 2019. The typical home purchased by investors in the second quarter cost $470,120, comparable with the $467,885 median price a year earlier.
Via @Wallstreetsil: Without transactions, many jobs that are commission oriented are seeing huge declines in incomes. Real estate agents, mortgage brokers, title insurance, home inspectors. All of the various categories are entering a depressions from lack of transactions.
The aggressive pace of interest-rate hikes is hitting mortgage books at Canada’s biggest banks, leading to slowing loan growth, longer amortization periods and a rise in impairments. Higher borrowing costs cut into mortgage growth, with would-be homebuyers sitting on the sidelines. At the country’s five largest lenders, including Royal Bank of Canada and Toronto-Dominion Bank, residential loan growth slowed to four per cent in the fiscal third quarter, compared with annual growth of 9.8 per cent a year earlier.
Boy am I glad that I smashed my debt down these past few years. I know of more than a few that spent a lot of money on depreciating assets.
We are overdue for a correction. Buckle up.
U.S. here, so I don’t know the Canadian market. Are listings way down, too?
I saw something here at SDA in the last week or so about people with fixed mortgages not wanting to sell only to have a higher mortgage payment while getting about the same or less amount of house than they have now.
I also recall that some people with variable rates were getting “forever loans” so they could at least keep the home they have. They’re not selling.
So I just don’t know enough to say whether it’s the institutional buyers not buying because they can’t get a return, or if it’s a supply problem and they can’t find as many houses to buy. Maybe a bit of both?
I dunno. I just don’t know the Canadian market and nobody has weighed in yet to give me some clue. I’ll check back.
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@H.R – Like the US Canada’s big geography lends to real estate market variations. Major cities boom while back country towns and small cities stay relatively stable.
Canada’s huge Liberal 1million/ year immigration influx coupled with Liberal building regulation restrictions along with Liberal real estate corruption schemes have caused a massive affordability crisis across the country.
How are things going in China?
Their domestic economy is based on housing and real estate. Will President Xi be able to keep the Chinese economy going and growing? Or will his President for Life term be prematurely shortened?
He’ll still be president for life, it’s maybe just shorter than expectancy.
Zero interest rate policy benefited the investor class over all others? What a surprise. I wonder how Biden will bail them out? Lots of neighborhoods have been ruined by properties being turned into AirBnBs. ( and spec-built AirBnBs ). This includes neighborhoods of million(s) dollar homes.
Another Obama policy that “unintentionally” helped the super-rich, and screwed everyone else.
It’s not just Obama and Biden. This Keynesian nonsense is widely shared. Very few conservative politicians ever complained about zero percent interest rates, especially here in Canada. Most, particularly provincial premiers, fully embraced the notion that when interest rates were that low, you’d be crazy not to borrow and spend.
Well “Half Keynesian” since governments never did the second half which required paying down debt and lowering spending in good times.
The provincial premiers never needed the excuse of “low interest rates” to borrow and spend, they all get high on OPM
Only in America? Not for long with millions of welfare seekers flooding across the southern border.
Vowg
The funny part. Even lib cities are having a fit because of these illegals. (-:
My wife’s cousin’s kid in California was all set for a career as a mortgage broker two years ago. He got let go not long after being hired and has not worked in the field since. There’s simply not enough business for all those brokers.
Should have learned a trade
Should have learned how to code AI privacy invasion programs
Who would have thought that rising interest rates would affect real estate? Certainly not someone who doesn’t think about fiscal policy or who thinks that budgets balance themselves. All one has to do cut back on Disney plus. / s
Have noticed many homes being advertised with “New Price” stickers on the broker signs
It is the beginning of another recession, the last one being in 2008 – 2009. Canada (and the United States) are long overdue for a recession and market correction. It has been my observation over time, that each recession hits a different part of the economy. In 2008-2009, it was the financial services sector. The really bad ones for me were the early 80’s and the early 90’s, when design and construction were severely impacted.
So this recession, it will be real estate – both commercial and residential. On a side note, I was reading on my Microsoft News feed yesterday about the viability of turning older commercial properties into residential condominiums. In general, the office buildings (especially the older ones) need major retrofits in turns of fire safety, plumbing (more individual bathrooms/kitchens) and accessibility to windows. Many are having their inner cores converted to indoor gymnasiums or club or meeting rooms for the condominium corporation.
My father always said that in every recession/downturn, there is always opportunities. Perhaps changing older office buildings into condominiums will prove to be an opportunity.
I’ve said this a while back a few times. I expect the value of houses in Canada to drop 25 – 30% I just don’t know the timeline.
I also expect the value of the US dollar to tank at some point. I stated this before BRICS was even on the horizon. When the US dollar flushes, Can$ will get sucked down in the splash.
These disasters are inevitable, it’s just a question of when. In reality, it will happen when they can no longer hide the truth or cover their shenanigans up. You can only paper over and lie about reality for so long, eventually, truth will rise out of the deliberately created quagmire. Right now they are all busy in the backside cover up mode!
Not sure about the rest of the country, but the market is booming in Alberta!
Haven’t seen housing turnover like this since 1999-2000. I’d wager 40-50% of the houses in my area have been sold in the last 2-3 years. Average sell times are 24-48 hrs.
Had some neighbours that were renting for the last 17 years get kicked to the curb, so the house can be sold. They even tried to buy the house themselves, but got denied. They were out looking at houses in Calgary, going to open houses, some had line ups of up to 20 people, waiting to tour the houses! Smaller towns closer to the larger cities are experiencing building booms, new communities going up like crazy, many high density units being built too.
My accountant sold their place and moved to the Island, the house down the street just sold, original owners since the 80’s when the community was built, freshly renoe’d home, the sign went up one day and had a sold sign on it, the next day. Been reading on Reddit, many people moving out of country, many to Mexico to expat enclaves in Mexico City and other locales. Willing to risk drug cartels over Canadian government cartels, can’t say I blame them.
If you were to aggregate the “It’s probably nothing” series on SDA and look through it over the years, you’d likely find that more often than not these headlines aren’t worth your mental energy, but a lot of hyperbole instead. Of course, one will hit here and there, because if you declare the sky is falling repeatedly, yep, you’ll eventually be right once or twice.
Additionally, what dismays me about this series is I remember reading an interview featuring Kate from years ago and the theme she put forward at the time (to paraphrase) was something like, “don’t sweat the small stuff, it’s almost always small stuff.” Maybe that’s been lost. Maybe I’m older. Maybe things have changed, but regardless I think that’s still sage advice.