Real Estate

Real estate investors snagged more entry-level houses than ever: Redfin

Investors are hungry for homes but, like consumers, are struggling with inventory shortages

Real estate investors purchased 26.1% of the lowest-priced homes for sale in the U.S. in the fourth quarter of last year, according to a report by Redfin. It was the highest share ever recorded and was up from 24% in Q4 2022.

By comparison, investors purchased 13.6% of the mid-priced homes (compared to 14.3% a year earlier) and 15.9% of the high-priced homes (compared to  15.4% a year earlier). As mortgage rates and home prices have remained elevated across the board, investors have mirrored consumer homebuyers and have shifted their focus toward more affordable homes. Moreover, low-priced homes have more potential for value increases as the stock of low-priced homes is both limited and coveted.

“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,” Carrie Caruthers, a Redfin real estate agent in Riverside County, California, said in the report. 

“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.”

Redfin placed homes into three buckets based on local sales prices. Low-priced homes accounted for 46.5% of all investor purchases in Q4 2023, down slightly year over year. Mid-priced homes accounted for 24.6% of investor purchases, also down from Q4 2022. The highest-priced tier represented 28.8% of their purchases, up more than 2 percentage points from a year earlier.

Investors mainly bought single-family homes (68.6%). Condominiums and co-ops accounted for 19.2% of their purchases, followed by townhouses (7.1%) and multifamily properties (5.1%). 

Some market participants argue that investors are harming consumer buyers by driving up costs and tapping excessively into the supply of homes for sale. But a recently released study found that there is “no evidence that single family REITs crowd out” consumer homebuyers or increase prices.

Investor activity is on the downside

Investors purchased 46,419 properties in Q4 2023, amounting to $32.3 billion worth of property, or 10.5% less than in the same period last year. Total U.S. home purchases fell by 12.2% year over year to 251,462, the lowest fourth-quarter level since 2012, according to Redfin data.

High interest rates, elevated home prices and a slowing rental market have made real estate investments less lucrative, prompting some investors to diversify their portfolios with Treasury bonds, for example. But the appetite for homes remains healthy, Orlando-based Redfin agent Juan Castro said.

“There are a lot of investors out there fighting for properties,” Castro said. “There just aren’t enough properties to go around, which is putting a cap on how many homes investors can buy.”

Redfin’s analysis relies on the study of county records across 39 of the most populous U.S. metropolitan areas.

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