As property investors are buying less homes in the US housing market, will they turn to further afield locations in the hopes to secure better returns?
Property investors in the US housing market purchased 48.6% fewer homes in the first quarter of 2023 than they did a year earlier, according to a new report from Redfin.
Investors bought 41,181 homes in the 40 major US metro areas tracked by the real estate brokerage, which is down from 80,128 a year earlier. This is the largest annual decline on record. Additionally, it outpaced the 40.7% drop in overall home purchases across these 40 major metros.
The figures show purchases by investors in the US dropped 15.9% on a quarter-on-quarter basis. This is comparable with the 14.7% quarterly fall in overall home purchases. The decrease in investors purchasing properties is happening as increasing interest rates and declining rents and housing values are eating into profits.
During the first quarter of this year, investors bought $27.5bn worth of homes in the metros tracked by Redfin. This is down from $51.2bn a year earlier, which is a 46.3% drop, and $31.4bn drop from the previous quarter, equating to a 12.4% fall.
Increasing mortgage borrowing costs
Borrowing costs have climbed even higher recently in the US. Redfin has said that means investors may pull back from the US housing market further. Investor home purchases usually rise on a quarter-on-quarter basis in the spring, but they will likely fall flat or decline once the data from the second quarter comes in.
While there has also been increased borrowing costs in the UK, the mortgage market has remained relatively competitive, and the weakening of the pound has led to a favourable exchange rate with the US dollar, allowing buyers and investors from the US to secure discounts.
Decreasing rents and rental demand
Recently, demand and rents in the US housing market have dropped. This is especially of note as rents usually increase during this time of year, which will be having an impact on landlords.
Slowing rental growth in the US is also making it more difficult for investors to secure any profits, so this may also be behind the decrease in investors buying property. And landlords are also facing a rise in vacancies in the US. But the opposite can be said for owning UK property in the private rented sector.
Slowing house price growth across US housing market
While US house prices increased slightly during May, house price growth has slowed to the lowest rate on record since 2016, according to the Realtor.com Monthly Housing Trends Report. This shows the US housing market is slowing as buyers and investors have lost some confidence in the sector.
Additionally, the median listing price on a square footage basis dropped compared to last year, which is the first time in the website’s data history. Among the 50 biggest metro areas in the US, 15 saw their median listing price decline.
Danielle Hale, Realtor.com’s chief economist, commented: “April and May are historically popular months to buy, and typically by this time in the year we’ve exceeded the prior year’s peak home price.
“Weakening home price growth for the past 12 months is increasing the odds that we may not see a new home price peak this year, for the first time in the history of our listing data, which dates back to mid-2016.”
With all of this happening in the US housing market, this could lead US property investors to look further afield for solid property investment prospects. The UK housing market has proven to be a successful global investment location, and US buyers are already one of the most prominent overseas buyers in the UK.
BuyAssociation has been helping US buyers and investors access the UK property market for 18 years. Get in touch to learn about our current investment opportunities and find out how we can help you invest.
