Investors are inclined to an increasingly grim view of the prospects for the US housing market.

I’ve discussed Redfin’s dataset on investor participation previously. Suffice to say investors piled into the pandemic housing bubble with readily apparent gusto.

On the eve of the most aggressive Fed tightening cycle since Paul Volcker, the investor share of the market, as defined by the percentage of home sales to institutions or businesses purchasing residential real estate, reached 20%, according to Redfin.

So, for every five homes sold during Q1 of last year, an investor bought one of them. If that sounds high to you, that’s because it was. The figure was between 6% and 10% in the decade prior to the subprime crisis, and between 8% and 15% between the GFC and the pandemic.

One implication of a larger investor footprint is fewer homes for families to purchase, and also a very competitive market where average people are competing (or, more aptly, not competing) with all-cash offers.

In terms of the sheer number of properties bought, Redfin’s dataset shows investor buying peaked in Q3 of 2021 at 95,124. Fast forward to Q1 2023 and that total was just 41,181, the lowest in seven years if you don’t count the pandemic.

The dollar value of those purchases was around $28 billion, 46% lower than Q1 of 2022, and down more than 12% from Q4.

The biggest declines were in the Sun Belt states, where investor purchases absolutely cratered. Sales to investors fell by two-thirds in the Atlanta metro area, for example.

Headwinds include a cooling rental market and the daunting prospect of having to sell properties at a loss. Recall that although prices remain much closer to record highs than pre-pandemic levels, home values are falling on a YoY basis now, even as some market observers suspect prices have bottomed.

Falling prices are especially problematic for flippers given the costs associated with repairs and upgrades. Redfin said that in March, that investor cohort took a loss on nearly 21% of homes they sold.

Of course, this doesn’t necessarily mean families are going to face less investor competition. Investors’ share of the market in Q1 was still 18%, higher than any pre-pandemic quarter going back at least 23 years.

Coming full circle, the read-through for prices isn’t great. As Redfin’s Lily Katz wrote Wednesday, “some investors may be moving their money into other asset classes that offer better returns, such as stocks and bonds” amid “widespread economic uncertainty and recession fears.”

Regular people, much as they might want a house, harbor reservations about the market too. The latest University of Michigan sentiment survey showed 80% of Americans think it’s a bad time to buy. They blamed both high rates and high prices.

One Redfin agent summed up the mood among investors: “The big corporations aren’t buying anymore.”