Meet the home buyers totally unfazed by 7% mortgage rates

By Aarthi Swaminathan

Individual investors and second-home buyers accounted for 1 in 5 home purchases in September - the highest share in a little over a year

While mortgage rates over 7% have everyday house hunters pulling back from the market, data suggest that real-estate investors are sticking it out.

In June, real-estate investor Justin Smith closed on a duplex in Roscoe, Ill. - about 90 miles west of Chicago - for $250,000. The rate on his 30-year fixed mortgage was 7%.

Smith, a 34-year-old real-estate broker who also owns three apartment buildings in Roscoe and nearby Rockford, told MarketWatch that smaller Midwestern cities in particular offer an easy way into real-estate investing, because the barrier to entry - namely, home prices - is relatively low. The average home value in Rockford, Ill., is about $185,000, according to Zillow's (Z) (ZG) estimates, compared to a national median value of about $366,000.

More importantly, "we have such a strong rental population," Smith said, meaning that many people in the area rent instead of own.

Smith isn't the only real-estate investor who's buying right now. While surging mortgage rates over 7% have everyday house hunters pulling back from the market, data suggest that real-estate investors are sticking it out.

In September, individual investors and second-home buyers accounted for 20% of home-purchase transactions - the highest share in a little over a year, according to the National Association of Realtors.

"Investors tend to pull back less than noninvestor buyers when conditions deteriorate," Hannah Jones, a senior economist at Realtor.com, told MarketWatch. "So their share of total buyers rises as higher mortgage rates squeeze out more noninvestor buyers." (Realtor.com is operated by News Corp subsidiary Move Inc.; MarketWatch publisher Dow Jones is also a subsidiary of News Corp.)

"There are opportunities for investors today that we haven't seen in years. Inventory is rising, sellers are cutting prices and negotiating leverage is shifting toward buyers," Michael Carbonare, another real-estate investor, told MarketWatch.

In September, the total for-sale housing inventory in the U.S. jumped to 1.6 million units, the highest level since November 2019, NAR said. About 43% of sellers were cutting prices as of Oct. 12, according to separate data from ParclHQ.

"It's a good time to be looking for motivated sellers, buying right and structuring deals that make financial sense," Carbonare said.

Related: U.S. wealth has shifted to stocks from homes. There are big reasons to worry.

Relatively small-time real-estate investors - those who own three to nine properties - have been more active than large landlords. About 14.5% of home purchases made in August were by smaller real-estate investors, which was up from 13.6% a year ago, according to Cotality, a real-estate data-analytics company.

In contrast, 9% of purchases were by medium-sized investors, and 2% were by large investors.

One factor driving some investors to buy houses now is strong rental demand. Rents nationally are trending upwards: In September, the typical rent rose 2.7% from the same time a year ago to around $1,900, Zillow found in an analysis.

"Elevated mortgage rates have pushed home shoppers straight into the arms of rentals," Kara Ng, a senior economist at Zillow, said in the report.

The company estimated that demand for single-family rentals rose nearly 22% in September from the previous year, and 10% for multifamily or apartment rentals.

In Chicago, where the typical rent grew 4.7% in September from last year to about $2,200, according to Zillow, 66-year-old Tom Moran is putting down $500,000 for a $2 million, six-unit apartment building in the city - the latest addition to his portfolio of 18 other buildings.

The mortgage rate was 6.625% for the bank-portfolio loan Moran used to finance the purchase, though he said the rate wasn't a concern for him. "It's just a number," Moran, a real-estate investor and broker who is now under contract on the property, told MarketWatch.

"Interest rates go up, interest rates go down - but in general, real estate is a long-term buy," he said. "I look at real estate as basically like a little business ... so I'm not worried about the initial return."

Having bought his first property in the late 1980s when the 30-year mortgage rate averaged over 10%, Moran said he's accustomed to high-rate environments.

As part of his due diligence before his latest purchase, Moran called up a few mortgage lenders for quotes before he pulled the trigger. The rates he was quoted ranged from mid-6% to over 7% - but he said he was unfazed.

"People freak out" when they see the 7% handle, Moran noted. On the loan he was pursuing, the rate going up a quarter point, from 6.875% to 7.125%, amounted to a roughly $250 hit per month for him. "It's not a deal-breaker," he said.

Do you have questions about real estate and home-buying that you would like to see covered in MarketWatch? We'd love to hear from you. You can write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.

-Aarthi Swaminathan

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10-17-26 0900ET