As high interest rates sideline many average homebuyers, real estate investors are stepping in to claim a record share of home purchases, particularly in affordable Midwest and Southern cities.

According to a report from Realtor.com, investors accounted for 14.8% of home purchases in the first quarter of this year, the highest percentage since data collection began in 2001. This marks an increase from 2023, when investors claimed an average of 13.1% of monthly homes sold.

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"Investors are generally the first to pull out of the market, as seen in 2023, as well as the first to reenter, which we are seeing signs of now," Hannah Jones, senior economic research analyst at Realtor.com, said in the report.

Small investors, defined as those who have purchased 10 or fewer homes since 2001, are driving the trend. They made up 62.6% of investor purchases from January to March, the highest small-investor share on record. The smaller players bought 6.4% more homes compared to the same period in 2023, while medium and large investors saw declines in activity.

The report said that affordability is key in the current economic climate, pushing investors toward lower-priced markets in the Midwest and South.

Missouri, in particular, saw significant investor activity. Three of the top five markets that saw the most investor activity in the first quarter of this year were in Missouri: Springfield (20.5%), Kansas City (20.1%), and St. Louis (18.9%).

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"We’re seeing a lot of out-of-state money coming in," Sarah Thompson, a real estate agent based in Springfield, said to Benzinga. "They’re drawn by our relatively low home prices and strong rental market. A house that might cost $1 million in California can be had here for $200,000, and it’ll rent for $1,500 a month. The math is pretty compelling."

The other top markets were Birmingham, Alabama (18.7%) and Memphis, Tennessee (18.2%). Those markets offer relatively low home prices and rising rents, making them attractive to investors.

"More buyers may be choosing to invest in affordable markets that need more rental inventory in order to secure a steady stream of rental income," Jones explained in the report.

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The surge in investor activity is not limited to the top markets. Other cities have seen increases in investor purchases compared to pre-pandemic levels.

Savannah, Georgia, leads with an 8.3% increase, followed by Youngstown-Warren-Boardman, Ohio-Pennsylvania (7.9%), Peoria, Illinois (7.2%), Springfield, Massachusetts (6.4%), and Montgomery, Alabama (6.3%).

Interestingly, while cash purchases have long been a hallmark of investor activity, the report says there is a shift in the trend.

The share of investors purchasing in cash fell to 64% in the first quarter — the lowest level since 2008 — reflecting an expanded use of debt financing across all investor types and a shift toward investors more likely to use mortgages.

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