Redfin reports major investor crash in Florida (60% collapse in Orlando)

A new report indicates a significant decline in US real estate investor purchases, with a 6% drop in the second quarter, marking the biggest decrease since 2023. This trend has been ongoing for three years, with notable collapses in markets like Fort Lauderdale (21% decrease), Orlando (25% decrease), and Phoenix (19% decrease). Investors are not only buying less but are also beginning to sell, raising questions about the future of home prices, especially since they had propped up the market for a decade.

Investor demand has plummeted dramatically in various cities, with Atlanta seeing a 75% drop, Charlotte 70%, and Phoenix 69%. Orlando and Tampa have reached their lowest investor demand levels in a decade. This exodus of investors is removing a key demand driver that fueled price increases during the pandemic.

The speaker explains that home prices drop due to supply and demand fundamentals. In Florida, for example, inventory is up 55% from the long-term average, leading to a projected price decrease of 6.4%. Similarly, buyer demand in California has dropped 35% over four years, contributing to a 1.2% decrease in home values. The shift from buyers to net sellers by investors is perpetuating this downturn.

• US real estate investor home purchases fell 6% in the second quarter, the biggest decline since 2023.
• Investor purchases have declined for three years, with some markets seeing drops over 70%.
• High inventory levels and reduced buyer demand are key factors influencing potential price drops.
• Mortgage rates exceeding cap rates are a major deterrent for investors, with a 4.9% cap rate and current 30-year fixed mortgage rates around 6.3%.
• The housing market is considered to be in the third or fourth inning of a downturn nationally, with significant price drops expected in many areas.

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Investor Purchases Collapse [0:04]

• US real estate investor home purchases fell 6% in the second quarter, the biggest decline since 2023.
• Investor purchases have been declining for the last 3 years.
• Home purchases by investors dropped as much as 21% in Fort Lauderdale, 25% in Orlando, and 19% in Phoenix.
• Investors are now starting to sell homes, not just refrain from buying.

This section highlights a significant and ongoing retreat of real estate investors from the housing market, with a notable acceleration in the second quarter and specific markets experiencing substantial declines. The shift from buying to selling by these investors raises concerns about future home price trends.

"US real estate investors continue to run from this housing market. The investor purchases they collapsed yet again, especially in Florida. And this data is showing you just how dire the situation is getting in the US housing market. It's really on its last legs right now."

Investor Demand Plummets in Key Markets [1:30]

• Investor demand has dropped significantly in various markets.
• Atlanta saw a 75% drop in investor purchases.
• Charlotte experienced a 70% drop.
• Phoenix saw a 69% drop.
• Jacksonville had a 67% decline.
• Orlando experienced a 62% decline.
• In Orlando and Tampa, investor demand is at its lowest level in a decade.
• Atlanta's investor purchases went from 13,000 in Q3 2021 to 3,000.

The data illustrates a dramatic decrease in investor purchasing activity across several major cities, indicating a significant cooling of investor interest. This decline is removing a crucial source of demand that previously supported price increases.

"The investors are running scared from the housing market right now and it's depriving the market of a key source of demand that was pushing prices up during the pandemic."

Factors Affecting Home Prices: Inventory and Demand [3:05]

• A commenter questions why home prices would fall if inflation is high.
• The model for understanding home price drops is explained using Florida as an example.
• In Florida, inventory is 175,000 homes for sale, compared to a long-term average of 114,000, a 55% increase.
• This inventory increase, combined with reduced investor buying, leads to a projected -6.4% price drop in Florida.
• Home sales in Florida have plummeted to the lowest level in 12 years.
• In California, home buyer demand has dropped by 35% over the last four years.
• If demand is down significantly and inventory is up, prices are more likely to drop.
• Home values are already dropping in California (-1.2% over last year), Texas (-2.3%), and Florida (-4.7%).

This section emphasizes that fundamental supply and demand dynamics, rather than just inflation, drive home prices. Rising inventory and falling demand, particularly due to investors exiting the market, are strong indicators of potential price declines.

"So for the people out there who are thinking that prices won't drop because of inflation, just look at the supply and demand fundamentals in your market."

Investors Shift from Buyers to Sellers [5:02]

• Investors are no longer buying homes and are becoming net sellers in many markets.
• An example of an investor selling a house south of Atlanta for under $200,000 is provided.
• This house was purchased by the investor for $226,000 in December 2024 and is now listed for $198,000, a 15% price cut in 9 months.
• Investors are selling in markets like Atlanta, Orlando, and Phoenix, causing prices to drop.
• There are 24 million investor-owned homes in America, representing about a quarter of all housing units.
• If investors stop buying and start selling, it could cause a perpetual decline in home values in certain markets.

The speaker illustrates the trend of investors becoming sellers, highlighting a specific case where an investor is selling a property at a loss. The sheer volume of investor-owned homes suggests that a widespread sell-off could significantly impact the market.

"The investors are selling everyone in markets like Atlanta. They're selling in markets like Orlando. They're selling in markets like Phoenix. And this is causing the prices to drop."

Investor Exodus and Inventory Spike in Tampa [8:00]

• Investor purchases in Tampa have significantly decreased, from 5,500 in Q3 2021 to 2,200, the lowest level in a decade.
• This drop in investor purchases has led to an explosion in inventory.
• There are now 20,000 homes for sale in the Tampa metro, the highest level in a decade.
• Values in Tampa St. Pete are down 5.6% in the last 12 months.
• The one-year forecast predicts values to drop another 8.4% over the next 12 months.

This segment demonstrates the direct correlation between a decline in investor activity and a surge in housing inventory, leading to falling home values in markets like Tampa. The inverse relationship between investor purchases and inventory levels is a key takeaway.

"When investor purchases plummet, what then happens to inventory? Inventory explodes. When inventory explodes, what then happens to prices?"

Mortgage Rate Declines and Buyer Demand [9:20]

• The Fed is poised to cut interest rates, potentially by 50 basis points in September.
• Mortgage rates have dropped to their lowest level in 11 months, with the 30-year fixed mortgage rate at 6.28%.
• Despite declining mortgage rates, buyer demand is already at a very low level.
• Investor purchases are down nationally by 50% from their peak.
• Mortgage applications from regular home buyers have also plummeted to near record lows, down 30-35% from pre-pandemic levels.
• With both investors and regular buyers out of the market, the demand to support prices is lacking.

The speaker notes that while mortgage rates are falling, this is unlikely to significantly boost buyer demand, as both investor and regular home buyer activity is extremely low. This lack of demand, coupled with a weakening labor market, creates uncertainty.

"So, we have investors out. We have regular home buyers out. Who's going to support the market? Who's going to stop prices from falling?"

The Investor Calculation: Cap Rates vs. Mortgage Rates [13:19]

• Investors are no longer purchasing homes because the math doesn't "pencil out" with current market conditions.
• The calculation for investors involves net operating income (rent minus expenses) and the cap rate.
• A key issue is that cap rates are not high enough relative to interest rates.
• The current cap rate to buy a house and rent it out in America is 4.9%.
• For much of the previous decade, the cap rate was higher than the mortgage rate, allowing for profitable cash flow.
• Since late 2022, mortgage rates (around 6.3%) have been above cap rates (4.9%).
• As long as mortgage rates remain above cap rates, investors are unlikely to return to the market.

This section delves into the financial reasoning behind the investor exodus, explaining that the profitability of real estate investments is currently undermined by the spread between mortgage interest rates and cap rates. For investments to make sense, mortgage rates need to fall below cap rates.

"The big issue for investors right now is that the cap rates are not high enough relative to the interest rates."

Housing Market Downturn: What Inning Are We In? [16:08]

• The speaker likens the current housing market downturn to an inning in baseball, estimating it's in the third or fourth inning nationally.
• This means the market is not yet close to halfway through the downturn.
• Home prices remain high, affordability is poor, and buyer demand is low, suggesting the market is still in its early stages.
• Specific markets like Austin, Texas, and Florida might be in the fourth or fifth inning.
• Nationally, the market is too expensive for home buyers, and investment numbers don't pencil out.
• The mortgage payment-to-income ratio for home buyers is currently 40%, significantly higher than the long-term average of 30%.

The analogy of baseball innings suggests that the housing market correction is still in its relatively early stages, with considerable room for further price adjustments. The affordability crisis for home buyers, measured by the mortgage payment-to-income ratio, is a significant barrier to demand.

"I would say we're probably in the third inning. third inning, maybe fourth inning in certain markets, but third or fourth inning, we're still not, I would say, close to the halfway point."

Distressed Real Estate and Foreclosures Rise [20:00]

• There hasn't been significant distress in the housing market yet, but mortgage defaults and foreclosures are rising.
• The foreclosure rate is still relatively low but increasing.
• A foreclosure in Miami is presented as an example: purchased for $666,000, listed for $1.4 million, and now in foreclosure for $699,000.
• This indicates that people and investors who overextended themselves in 2021-2022 are running out of time and capital.
• Foreclosure starts are up by about 10% year-over-year.
• The speaker advises keeping an eye on distressed listings and foreclosures in local markets.

This section points to an emerging trend of distressed properties and foreclosures, signaling that some market participants, particularly investors who took on excessive debt, are facing financial difficulties. The example of a Miami foreclosure illustrates the rapid turnaround in fortunes for some property owners.

"This is the type of thing we might see more of over the next 12 months."

Investor Purchases Rebound in Some Markets [23:30]

• While many markets see investor purchases declining, some are experiencing an increase.
• Anaheim, California, saw a 5% year-over-year increase.
• Los Angeles, California, saw a 7% year-over-year increase.
• New York, New Jersey, saw an 11% increase.
• Portland, Oregon, saw a 14% increase.
• Seattle, Washington, saw a significant 51% year-over-year increase in investor purchases.
• Investors are transitioning back to legacy markets like California and to the Midwest, where cap rates are higher.
• Cleveland is highlighted as a new hot investor market with higher cap rates and increasing home values.
• Home values are still going up in the Midwest and Northeast, while declining in areas like Florida, Texas, and Phoenix.

This part of the discussion presents a counter-trend, noting that investor activity is increasing in certain specific markets, often driven by higher cap rates and ongoing appreciation, particularly in the Midwest and Northeast. This suggests a geographic shift in investor strategy.

"Generally, what we're seeing is that the investors are… not going to say they're flooding back into the market, but in a place like LA, you know, you could see, yeah, the investor purchases are up the last couple years."

Regional Market Analysis and Forecasts [25:30]

• Fannon County, North Georgia: Values down 1.4% last year, forecast to drop another 4.8%. It has shifted to a buyer's market.
• Austin, Texas (zip code 78701): Down 23% from peak, forecast to drop another 8.3%.
• Vacaville, California (zip code 95687): Down 1.5% last year, down 5.8% since mid-2022, forecast to drop another 5.7%.
• Newport Beach, California (zip code 92660): Values up 4.8% last year, forecast to rise 2.7% due to low inventory and decent buyer demand relative to inventory.
• Zanesville, Ohio (zip code 43701): Values up 2.7% last year, forecast to be flat (0.1%). It's trending towards a buyer market.
• Upstate New York (Albany, Pipsy, Dutchess County): Strongest appreciation in the last year, with positive forecasts (Albany +6%, Pipsy +4.9%) due to a massive inventory shortage.
• Washington D.C. (District of Columbia): Home values down 3.8% last year, forecast to drop -7% over 12 months due to high inventory.
• Gainesville, Virginia (zip code 20155): Prices up 2.5% last year, forecast to rise 3.8% due to low inventory, remaining a seller's market.

This section provides detailed forecasts for various specific zip codes and regions, illustrating diverse market conditions. It highlights how inventory levels, buyer demand, and regional economic factors influence price trends and future projections.

"If you live in DC right now and inventory is going through the roof, it's suggesting prices are going to continue to drop."

Reventure App's Price Forecast Accuracy [36:42]

• The Reventure price forecast has a 73% correlation coefficient in predicting prices from 2024 to 2025.
• The forecast has been over six times better than Zillow's in predicting prices so far in 2025.
• The accuracy is attributed to analyzing underlying market data like inventory, days on market, and price cut trends.
• Users can access this data and forecasts on reventure.app for $49 a month.
• The premium plan has shown a significant ROI, with users saving tens of thousands of dollars.
• A long-term growth score has also been added to the platform.

The speaker emphasizes the reliability and accuracy of their price forecasting model, comparing it favorably to other sources. The platform aims to empower buyers and investors with data-driven insights to make informed decisions.

"And that's really strong. You can basically see in the markets that are going down the most this year, we had a negative forecast last year. And the markets that are going up the most this year, we had a positive forecast last year."