Investors Bought 26% of the Country’s Most Affordable Homes in the Fourth Quarter—the Highest Share on Record

Rhea-AI Summary

Real estate investors purchased a record share of low-priced U.S. homes in the fourth quarter, with a 26.1% share, up from 24% a year earlier. Overall investor home purchases dropped 11% year over year, reaching $32.3 billion in value. The total supply of homes for sale in the U.S. fell 5.1% year over year in December.

Positive

• Investors bought a record 26.1% share of low-priced U.S. homes in Q4.
• Overall investor home purchases decreased by 11% year over year.
• The total supply of homes for sale in the U.S. dropped by 5.1% in December.

Negative

• Investor purchases fell due to high interest rates and elevated home prices.
• Some investors shifted to other investments like Treasury bonds.
• Investor purchases have fallen for the sixth straight year.

Insights

Market Research Analyst

The recent data indicating a decline in investor home purchases by 11% year over year in the fourth quarter, with a noted uptick in the proportion of low-priced homes purchased, highlights a strategic shift in investor behavior within the real estate market. This shift is likely a response to the current economic climate, characterized by high interest rates and a sluggish rental market, which has necessitated a more cautious investment approach. The increased interest in lower-tier properties suggests that investors are seeking opportunities for greater equity gains, anticipating that these assets may offer a higher return on investment due to their potential for value appreciation in a strained housing affordability scenario.

Furthermore, the geographic variations in investor activity, with significant increases in areas like Riverside, CA and Chicago and decreases in markets like Cincinnati and Orlando, FL, reflect the regional disparities in market dynamics. These patterns may influence local economies, potentially affecting construction, housing supply and rental prices. The concentration of investor purchases in certain areas could lead to a more competitive market for first-time homebuyers and may drive up prices in the lower-priced home segments, exacerbating affordability issues for regular consumers.

Real Estate Economist

An analysis of the investor home purchase trend reveals a nuanced picture of the current state of the U.S. housing market. While the overall decline in investor purchases suggests a cooling off from the fervent activity seen during the pandemic, the slight increase in the share of homes bought by investors, particularly in the low-priced segment, underscores a persistent investor presence. This trend could be indicative of a market adjusting to new economic realities wherein investors are adapting their strategies to align with changing interest rates and home prices.

The resilience of the U.S. economy, despite these shifts and the expectation of potential interest rate cuts later in the year, could serve as catalysts for renewed investor interest in the housing market. The implications for the broader economy include a potential stabilization of the housing market if investor activity maintains a steady, albeit reduced, pace. This could provide a floor for home prices and help mitigate the risks of a sharp downturn in the real estate sector, which is a critical component of overall economic health.

Financial Analyst

The strategic pivot of real estate investors towards more affordable housing options, as evidenced by the increased share of low-priced homes in their portfolios, can be interpreted as a risk-adjusted response to the current high-interest environment. The marginal increase in the overall cost of homes purchased by investors, coupled with the slight decline in total value of homes bought, suggests a careful balancing of investment volumes against cost considerations. These trends have significant implications for real estate investment trusts (REITs), housing-related stocks and the broader financial markets.

Investors' continued interest in the housing market, despite the challenges posed by high borrowing costs and tepid rent growth, indicates a belief in the long-term value proposition of real estate assets. This could signal underlying confidence in the market's fundamentals and may serve as a positive indicator for market stability. However, if investor activity were to significantly increase, it could lead to upward pressure on home prices, potentially affecting affordability and the future trajectory of the housing market.

Overall, investor home purchases dropped 11% from a year earlier, the smallest decline since they began falling in 2022

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) — Real estate investors bought 26.1% of low-priced U.S. homes that sold in the fourth quarter, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. That’s the highest share on record and is up from 24% a year earlier. By comparison, investors purchased 13.6% of mid-priced homes that sold (vs 14.3% a year earlier) and 15.9% of high-priced homes that sold (vs 15.4% a year earlier).

Investors are drawn to affordable homes for the same reason as other homebuyers: They cost less, which is especially attractive when home prices and borrowing costs remain elevated. And when housing affordability is this strained, there could be more potential for value increases in the lower price tier, meaning more potential for building equity.

For its analysis, Redfin determined the three price tiers by dividing home purchases into three buckets: low-priced, mid-priced and high-priced. Low-priced homes are those that fall into the bottom tercile of local sale prices, while mid-priced are those in the middle tercile and high-priced are those in the top tercile.

Low-priced homes made up 46.5% of all investor purchases in the fourth quarter (vs 47.2% a year earlier), while mid-priced homes made up 24.6% (vs 26.4% a year earlier) and high-priced homes represented 28.8% (vs 26.5% a year earlier).

“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. When they find those properties, they pile in,” said Carrie Caruthers, a Redfin Premier real estate agent in Riverside County, CA. “I’ve recently seen an uptick in foreclosures, which investors are interested in because they often sell at a discount. I just sold one foreclosed house to an investor for $400,000. It probably would’ve sold for around $500,000 if it hadn’t been a foreclosure, but the investor got a deal because foreclosure purchases come with risks.”

Overall Investor Home Purchases Dropped 11% in the Fourth Quarter

Investor purchases of U.S. homes fell 10.5% year over year in the fourth quarter to 46,419—the lowest fourth-quarter level since 2016. Overall U.S. home purchases posted a slightly larger decline, falling 12.2% to 251,462—the lowest fourth-quarter level since 2012.

Investor home purchases have fallen in part because high interest rates, elevated home prices and a sluggish rental market have made investing less lucrative. Some investors have shifted their money into other investments that offer good returns and lower risk, such as Treasury bonds. But Redfin agents in both California and Florida said many investors are still hungry for homes.

“There are a lot of investors out there fighting for properties,” said Juan Castro, a Redfin Premier real estate agent in Orlando, FL, which posted the third largest drop in investor purchases in the country last quarter. “There just aren’t enough properties to go around, which is putting a cap on how many homes investors can buy.”

The total supply of homes for sale in the U.S. fell 5.1% year over year in December and remained far below pre-pandemic levels as most homeowners stayed put to avoid losing the rock-bottom mortgage rate they scored during the pandemic.

The typical home purchased by investors in the fourth quarter cost $453,271, up slightly from $426,573 a year earlier, as U.S. home prices ticked up. Overall, investors bought $32.3 billion worth of U.S. homes, down just slightly from $33.6 billion a year earlier.

Investors Purchases Didn’t Fall Nearly as Fast as They Did Last Year

The 10.5% drop in investor home purchases in the fourth quarter marks the sixth straight year-over-year decline. But that pales in comparison to the 44.1% drop of a year earlier and represents the smallest decrease since investor purchases started falling in the third quarter of 2022.

The decline in investor purchases has eased as the shock of elevated mortgage rates has subsided and the U.S. economy has proven to be more resilient than many expected.

“It’s too early to say that investor purchases have hit a bottom, but they’re unlikely to shoot up like they did during the pandemic anytime soon,” said Redfin Senior Economist Sheharyar Bokhari. “That’s because borrowing costs and home prices remain high, the number of homes available to buy remains low and rents remain lackluster. If the Fed cuts interest rates later this year as expected, we may see more investors wade into the housing market.”

Investors Bought Nearly 1 of Every 5 Homes That Sold in the Fourth Quarter

Investors bought 18.5% of U.S. homes that sold in the fourth quarter, up from 18.1% a year earlier. Their market share likely rose slightly because they didn’t retreat as quickly as individual buyers.

Single-Family Homes Represented Over Two-Thirds of Investor Purchases

Single-family homes represented 68.6% of investor purchases in the fourth quarter (vs 68.8% a year earlier). Condos/co-ops made up the second largest share (19.2% vs 17.9% a year earlier), followed by townhouses (7.1% vs 8% a year earlier) and multifamily properties (5.1% vs 5.3% a year earlier).

Metro-Level Highlights: Q4 2023 Investor Activity

Where investor purchases increased/decreased most from a year earlier:

• Biggest increases: Riverside, CA (+25%), Chicago (+20.9%), San Jose, CA (+18%)
• Biggest decreases: Cincinnati (-28.8%), Providence, RI (-27.7%), Orlando, FL (-26.5%)

Where investors bought the highest/lowest share of homes that sold:

• Highest share: In Miami, investors bought 31.5% of homes that sold. Next came Jacksonville, FL (25.6%) and Anaheim, CA (25.5%).
• Lowest share: Providence, RI (9.9%), Warren, MI (10.1%), Montgomery County, PA (10.2%).

Where the share of homes bought by investors increased/decreased most from a year earlier:

• Biggest increases: In Sacramento, CA, investors bought 21.5% of homes that sold, up 4.6 percentage points from a year earlier. Next came San Diego (+4.6 ppts) and Riverside (+4.3 ppts).
• Biggest decreases: Atlanta (-3 ppts), Orlando (-2.7 ppts), Miami (-2.5 ppts).

To view the full report, including charts and additional metro-level data, please visit: https://www.redfin.com/news/investor-home-purchases-q4-2023

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We also run the country's #1 real estate brokerage site. Our home-buying customers see homes first with same day tours, and our lending and title services help them close quickly. Customers selling a home in certain markets can have our renovations crew fix up their home to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Customers who buy and sell with Redfin pay a 1% listing fee, subject to minimums, less than half of what brokerages commonly charge. Since launching in 2006, we've saved customers more than $1.5 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240214658662/en/

Redfin Journalist Services:

Angela Cherry

913-638-8249

press@redfin.com

Source: Redfin

FAQ

What was the share of low-priced U.S. homes purchased by investors in Q4?

Investors bought a record 26.1% share of low-priced U.S. homes in the fourth quarter.

How much did overall investor home purchases decline year over year?

Overall investor home purchases dropped by 11% year over year.

What happened to the total supply of homes for sale in the U.S. in December?

The total supply of homes for sale in the U.S. fell by 5.1% year over year in December.