Despite record housing costs, real estate investors are piling back into real estate.

According to Redfin, investors bought roughly 44,000 U.S. homes between January and March, a 0.5% increase from the year before. It was the first annual increase since the second quarter of 2022.

Single-family homes accounted for 68.9% of investor purchases during the quarter. Condos (18.7%) and multifamily units (7.2%) accounted for most of the rest.

By Redfin's estimates, investors bought out 19% of listed homes in the first quarter.

While some investors are clearly looking to make a quick buck, Redfin says that the majority of buyers are not flippers and are likely to rent out their properties.

“When home prices got crazy high during the pandemic, investors sold out,” said Connie Durnal, a Redfin Premier agent in Dallas, Texas.

“But several months ago, they started to ramp back up. I’m not seeing a lot of home flippers in our market, but there are a lot of investors looking for single-family homes to rent out, which are in short supply,” she said.

That “short supply” Durnal said is a big reason why home prices continue to rise despite a lack of buyer demand. This has created a market of haves versus have-nots.

And that gap is widening.

A tale of two markets

According to St. Louis Fed data, the typical home in the U.S. now sells for between $420,000 and $513,000, depending on the methodology used to estimate average home prices.

Due to low inventory, these prices aren't expected to come down for the foreseeable future.

Investors with deep pockets and existing homeowners with a sizable equity cushion may afford them. But for everyone else, homeownership is simply too expensive.

The main challenges are affording a sizable down payment to avoid getting slapped with private mortgage insurance, as well as monthly mortgage payments that have swelled over the past two years.

According to Freddie Mac, 30-year fixed-rate mortgages averaged 7.03% last week—more than double the rate from just a few years ago.

High financing costs are making it harder for first-time buyers to outbid investors, whose presence Redfin says will be “permanent” in the future.

Like everyone else, investors prefer to buy properties on the cheap and will enter a bidding war to get what they want. More often than not, they have the upper hand over individual buyers.

“I get tons of emails every day from investors looking for properties, but of course, they only want homes that are under market value, which are hard to come by,” said Redfin Premier agent Carrie Carruthers.

“When they find those properties, they pile in.”