The Cooling Housing Market and Its Effect on Property Investors

Since the beginning of the year, the housing market has changed. A rise in interest rates, the amount of money required as a down payment, a drop in sales prices, and increased inventory on the market have home sellers concerned. A once-hot market has begun to cool.

According to recent reports by Realtor.com and Redfin respectively, as reported by CNBC, one in five sellers in August dropped their asking price, with the average home selling for less than its list price for the first time in more than 17 months. Homes were also on the market for an average of five days longer in August than a year ago, marking the first annual increase in the market in more than two years, according to Realtor.com. The median in August, according to Realtor.com, dropped to $435,000 from $449,000 in July.

How Today’s Market Impacts Property Investors

Home purchases by real estate investors in the first quarter of 2022 declined by 11.5% as compared to fourth quarter 2021, according to Redfin. “Surging interest rates and high housing prices have made it more expensive to get a mortgage and buy a home,” said Redfin Senior Economist Sheharyar Bokhari in a company press release. “While roughly three-quarters of investor purchases are made with cash, investors are still impacted by interest rates because they often take out loans to get that cash.”

Property investors, however, still represent a big piece of the homebuying pie, purchasing a 20% of homes that sold in the first quarter as home prices dropped, according to Bloomberg. The uptick in residential property purchases by investors was fueled in part by the pandemic with the demand for residential real estate soaring in 2020 and 2021.

Moreover, although impacted by the changing market, property investors are still not feeling the same level of pain due to higher interest rates as individual homebuyers. They can purchase homes and get significant rents to recoup their cash outlay. Asking rents, for example, in Cincinnati, Seattle and Nashville are up by more than 30%. In Austin, home rentals are up nearly 50%, according to Redfin.

Our Investor Property Program

ISC’s Investor Property Program boasts a strong appetite in this niche market, providing Property insurance for rental dwellings (1-8 family), condo rentals, risks under renovation, short-term vacation rentals and vacant dwellings. TIV is up to $2 million on any one location. Property insurance is available on an actual cash value or replacement cost value basis and we have a number of optional coverages for insureds to protect their properties, including loss of rents, equipment breakdown, ordinance or law, water backup, flood, earthquake and more.

Sources: CNBC, Redfin, Realty.com, Bloomberg