Despite investor purchases of residential properties dropping to a recent low, they continue to acquire a sizeable share of the country’s most affordable homes, according to new data from Redfin.
The Seattle-based national real estate brokerage reported that investors bought 46,419 homes in the fourth quarter, down 10.5% year over year to reach the lowest fourth-quarter level since 2016. Home purchases by investors have ebbed because high capital costs have combined with a lethargic rental market to depress investment returns, with many investors instead putting their money toward lower risk, higher return arenas such as Treasury bonds.
But among homes priced among the bottom third of local sale prices, investors remain active. Real estate investors purchased 26.1% of such homes sold in the fourth quarter, up from 24% in the same period one year prior and the highest percentage on record.
The investing appeal of more affordable homes in an environment with high prices and high interest rates is obvious, but Redfin noted another advantage: the lowest price tier also offers more potential for home value increases and therefore more potential for building equity.
Notably, while investors acquired a larger share of low-priced homes in the fourth quarter, the share of low-priced homes as a percentage of all investor purchases has actually gone down. Homes priced in the bottom third of local sale prices made up 46.5% of all investor buys in Q4 2023, down from 47.2% year over year.
Investors also acquired a larger share of high-priced homes during the fourth quarter than they did one year earlier (15.9% of homes in the top one-third of local sales prices in Q4 2023, compared to 15.4% in Q4 2022). The share of high-priced homes as a percentage of investor purchases was also up, growing to 28.8% in the last three months of 2023, up from 26.5% in the same period of 2022.
Investors bought 13.6% of mid-priced homes sold in the fourth quarter, down from 14.3% one year prior. Mid-priced homes made up 24.6% of all investor buys, down year over year from 26.4%.
Carrie Caruthers, a Redfin agent in California’s Inland Empire, said that investors remain active — in fact, while the 10.5% annual drop in investor home purchases during the fourth quarter was the sixth consecutive decrease, it’s the smallest downshift since investor activity first began falling during Q3 2022.
“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,” Caruthers said. “When they find those properties, they pile in. 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.”
