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It had to happen sooner or later: The effect of high interest rates, purchase prices, and escalating holding costs has caused investor purchases to plummet to a six-year low, according to a new Redfin report.
However, every cloud has a silver lining, and the pullback has coincided with a spike in inventory in many markets and softening prices, leaving keen-eyed, well-funded investors an opportunity to quietly pick up deals.
The Six-Year Pause
Redfin’s report notes that during the first quarter of 2026, U.S. investor home purchases fell 6% year over year, dropping to their lowest level since 2020, amid the pandemic.
The brokerage/listing site said that before the pandemic, investor purchases had been this low only once, in 2016. A confluence of factors beyond high interest rates and rising property prices has caused investors to hit the brakes. These include insurance costs, property taxes, renovation and maintenance costs, and economic uncertainty stemming from geopolitical tensions.
Tamara Mattox-Kabat, a Redfin Premier agent in Denver, said in the report:
“Higher mortgage rates, slowing price growth, and rising construction costs are giving both investors and individual homebuyers pause. Flippers and investors are scaling back and being much more strategic when they do buy homes. They’re buying less expensive materials and being more careful about timing their projects to list during the stronger spring and summer seasons. It’s also noteworthy that large institutional investors are focusing more on building new homes than buying existing ones.”
Other Key Points From the Report
Investors bought 19% of all homes in the first quarter.
Investors’ purchases of condos fell sharply by 8% compared to the same period the previous year, due in part to rising HOA fees. Single-family homes were down 6% and townhouses 13% over the same period.
Lower-priced homes fell by 10%, but higher-priced homes only fell by 1%, showing that well-financed investors wanted to lock down stable, long-term investments with both equity and cash flow potential.
In Detroit, investor purchases were down by a massive 35%, in Orlando by 25%, and in Cleveland by 21%. Conversely, in the Bay Area, they were up by 19% in San Francisco and in San Jose by 12% over the previous year.
AI Is Fueling Deep-Pocketed Buyers
Smaller, less expensive properties with tight margins, often favored by newbie investors with limited budgets and relying on leverage, dropped off a cliff in many markets, such as Detroit and Orlando. That’s because cash flow for these homes is negligible at the moment, while maintenance—measured in both time and money—makes buying these types of houses—considered bread-and-butter workhorses—during a time of low interest rates simply not worth the hassle as far as many are concerned.
However, pricier markets around San Francisco are on fire thanks to the AI boom, with well-heeled investors able to purchase at will with cash.
“People are rushing in,” David Cohen with City Real Estate told the Wall Street Journal. “You add increased demand because of all this AI money and the fear of competing against those AI buyers.” The Journal reported that the city’s trademark Victorians and apartment buildings have been highly coveted.
TechCrunch reported that this had become par for the course, with crazy money sparking multiple bidding wars in a real estate market gone wild.
“There are lots of people who have gotten very rich off of AI,” Redfin chief economist Daryl Fairweather told Fortune.
The opposite was true in more traditional real estate markets. “At the same time, salaried white-collar workers are feeling the strain of the economy, worry[ing] that AI is going to replace them,” Fairweather added.
Agents and Mortgage Brokers Quitting the Market Reflect the Malaise of Many Investors
The frenzied Bay Area market is undoubtedly an anomaly compared with many other markets across the country, where sluggish sales and investor pullbacks have led many real estate agents to quit the business.
“It’s a lot of energy and a lot of money just to exist as a real estate agent,” former agent Erica Rojek of Silver Spring, Maryland, told the Journal, citing costs for licensing, brokerage fees, marketing, and coaching. “When you’re not closing the transactions, it makes it really hard to continue.”
How Small Investors Can Still Win
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Inventory is on the rise as prices are falling, creating buying opportunities
Investors are backing out just as inventory in many markets is increasing and prices are falling. Realtor.com‘s April 2026 Monthly Housing Report shows inventory is up 4.6%, while list prices fell for the sixth straight month, led by the Northeast and Midwest. There are deals to be had and sellers who are willing to negotiate.
Less competition means more opportunities—but negotiate everything
Investing today is sharply divided into those who can afford to buy with cash or a considerable down payment—which offsets the perils of higher interest rates—and those who are looking to borrow. Borrowers should not be afraid of negotiation.
Negotiate so the deals make sense with current interest rates
Ask for credits with inspections and closing costs, because there’s no telling when rates will come down. If the numbers don’t work to at least break even, be prepared to walk away.
Don’t buy without reserves
Reserves are a necessity, especially when borrowing. Firstly, you will not be able to get a loan without showing six months or so of reserves (PITI). Secondly, as an investor, you should have additional funds for operating expenses—repairs, maintenance, and vacancies. The more the better!
It is better to buy fewer houses in this market but safeguard the ones you have with more cash on the sidelines.
Shop around for everything
Not only will you have to look at more houses and write more offers, but you will also have to canvass extensively for lenders offering the best rates, asking for options like floatdowns or buydowns where they materially improve the deal.
Once you have the deal, shop around for insurance and management companies. Ask for testimonials, and run the numbers based on the percentage of rent charged. Do extensive market research on realistic rents. Many prospective managers will start high and get you to sign with them, then lower the rent if your apartment remains vacant.
Maximize rental income
ADUs, converted garages, attics, and basements—where codes allow—can be a godsend in boosting rental revenue. Take advantage.
Final Thoughts: Find Cash Partners
There are deals in every market. However, the investors who invariably build their fortunes in down markets are well-funded. If you don’t have the funds, team up with someone who does, and put in some sweat equity. Present a number of different investment strategies that include selling once the price reaches a certain number or buying and holding on a long-term basis.
Many investors have multiple silent partners—whether they are people they have met or been referred to by others on the BiggerPockets forums, at a local REIA, or simply family members or friends. To paraphrase the movie Field of Dreams: Find the deals, and they will come.
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