Investors buying a bigger share of affordable homes
While overall activity softened last quarter, real estate investors flocked to Chicago and cities in California in the hunt for lower-priced properties.
Key points:
- According to Redfin, investor purchases fell 10.5% in the fourth quarter, but they fared better than the market as a whole.
- Investors, who largely targeted single-family homes, bought the largest share of affordable homes on record, potentially squeezing out more typical buyers.
- Riverside and Chicago each saw investor activity increase more than 20% in the last year.
Investors didn't purchase as many homes last quarter — but those who did buy set their sights on lower-priced homes, Redfin researchers found in a new report.
And that means regular homebuyers continue to compete with cash-flush investors for the most coveted properties: affordable homes that are within reach for typical earners.
Investors purchases fell, but still accounted for a large share of total sales
According to Redfin, investor purchases were down 10.5% year-over-year at the end of 2023. While a significant dip, investors fared slightly better than the market as a whole, which saw U.S. home purchases fall 12.2% in the fourth quarter. And the decline was relatively modest compared to a year ago, when investor purchases fell more than 44.1%.
Investors scooped up more than 46,000 homes in the quarter, similar to levels last seen in 2016. Investor purchases peaked in 2021, rising to between 90,000 and 100,000 homes per quarter, but that figure took a dramatic nosedive in 2022 as mortgage interest rates skyrocketed.
Despite the dropoff in investor purchases, they still accounted for 18% of all home purchases in Q4, up slightly from a year prior but down from peak levels seen in early 2022.
Looking at the type and price of homes investors are purchasing, they appear to have a very clear preference: lower-priced single-family homes.
Which could make an already-challenging market even less accessible for typical homebuyers.
According to Redfin, investors accounted for 26% of all lower-priced home sales last quarter — the highest level in that segment on record. Redfin defined low-priced homes as those falling within the bottom third of sale prices for a given area. Nearly half (46.5%) of total investor purchases in the last quarter were for affordable homes, and 69% were single-family homes.
Where investor activity picked up momentum
What is considered a "lower-priced" home looks much different in California versus Illinois — and these are the two states where investor purchases of homes picked up the most over the last year.
Investor activity in Riverside, California, increased by 25%, and in Chicago, by nearly 21%. In Riverside, the median price of homes purchased by investors was $541,000 versus around $235,000 in Chicago.
Of the top 10 metros with the biggest increase in the share of investor purchases, seven were in California — a state known for its affordability challenges. In addition to Riverside, those metros included Sacramento, San Diego, San Jose, Anaheim, Los Angeles and Oakland. In four of those cities, the median price of homes purchased by investors was at or above $1 million.
Some researchers predicted late last year that California cities could become even more attractive to regular buyers and investors in 2024. They noted that, despite high home prices, there remains strong upside potential in price growth thanks to the correction several California cities witnessed in the last couple of years, combined with strong demand and lower mortgage rates.