Real estate investors turned their focus towards the acquisition of low-priced homes, marking a record-high share in the fourth quarter, according to a new report from Redfin. The data indicates that investors purchased 26.1% of low-priced homes sold during this period, an increase from 24% the previous year.
The analysis by Redfin showed a contrasting trend in the purchase patterns for mid and high-priced homes. Investors accounted for 13.6% of mid-priced and 15.9% of high-priced home sales, slightly adjusting from the previous year's figures. This strategic move towards low-priced homes is driven by the potential for value increase and equity building in a market where affordability is increasingly strained.
“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.”
Despite the heightened interest in affordable homes, overall investor purchases saw a decline of 10.5% year-over-year in the fourth quarter, hitting the lowest level since 2016. This downturn reflects broader challenges such as high interest rates, a sluggish rental market, and a limited supply of homes, which have deterred investment activities to some extent.
However, the total value of homes bought by investors remained substantial, with $32.3 billion worth of properties acquired, slightly down from the previous year. The resilience of the U.S. economy and the anticipation of potential interest rate cuts by the Federal Reserve may offer new opportunities for investors moving forward.
The report also sheds light on the types of properties favored by investors, with single-family homes constituting over two-thirds of purchases. Notably, investor activity varied significantly across different metropolitan areas, with notable increases in places like Riverside, CA, and Chicago, while cities like Cincinnati and Orlando saw significant decreases.
“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.
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 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.
As the housing market continues to evolve, the strategies of real estate investors are adapting, demonstrating a keen interest in more affordable segments that offer growth potential despite the current challenges in the market.
