While spiked mortgage rates haven’t deterred housing investors from the market, there has been a notable shift in the locations they are targeting.
Analysts at LendingOne embarked on a study to identify which housing markets investors are flocking to and which ones they are pulling back from.
LendingOne’s key findings:
- Investors are retreating from high-cost, slower population growth housing markets such as San Francisco, San Jose, San Diego, and Los Angeles.
- Investors are now turning their attention to markets characterized by affordability, such as Pittsburgh and Louisville, or those with promising long-term population and rent growth, such as Denver and Charlotte.
- The exurb areas surrounding New York City, which are benefiting from the stickiness of hybrid work, continue to attract significant investor interest.
To conduct our analysis, LendingOne utilized Parcl Labs’ “Investor Purchase to Sale Ratio,” which is designed to calculate where investors are collectively purchasing more single-family homes than they are selling, and vice versa.
The reason single-family investors are pulling back from markets like San Francisco and San Diego boils down to cash flow: While spiked mortgage rates have made it challenging to find cash-flowing properties across much of the country, it's even more pronounced in high-cost markets where finding cash-flowing properties was already difficult before rates increased. The primary way to make markets like San Diego attractive again would either be a pullback in mortgage rates or a substantial increase in rents.
On the flip side, markets like St. Louis and Indianapolis have kept investors' attention given it’s easier in those markets to find single-family rentals that can still cash flow even at 6% and 7% mortgage rates.