Investors Are Now Targeting Low-Priced Homes

More than one in every four low-priced homes sold in the U.S. in 4Q 2023 was bought by an investor, Redfin reports.

“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,” according to a company agent in Riverside, CA.

It is the same story in many other cities, including Atlanta. “They go after every listing under $500,000 … it’s like clockwork,” a realtor in Alpharetta, an Atlanta suburb, told the Atlanta Journal-Constitution. “The property gets listed and, sight unseen, they make offers within an hour.”

“Armed with billions of dollars in cash, bulk buyers have accumulated more than 65,000 single-family homes across the Atlanta metro area over the last decade, an AJC data analysis found. Eleven companies own more than 1,000 homes each. The two largest — Invitation Homes and Progress Residential — own more than 10,000 homes apiece,” the newspaper reported.

Nationally, the 26.1% of low-priced homes bought by investors in 4Q 2023 as reported by Redfin represented the highest percentage on record. Investors scooped up 13.6% of mid-price houses sold and 15.9% of high-priced homes. In total, they bought 18.6% of U.S. homes sold in the fourth quarter. Single family homes made up almost 70% of the total, followed by condos/co-ops, townhouses and multifamily.

Redfin said the cheaper homes appeal to investors because of their low prices at a time when borrowing costs more and because of the potential for their value to increase over time. They made up almost half (46.5%) of all investor home purchases in the fourth quarter. Mid-price homes represented 24.6% and high-priced homes 28.8% of investor purchases.

By volume, investor home purchases dropped 10.5% in 4Q 2023 to 46,419 compared to 4Q 2022. That was less than overall U.S. home purchases, which fell 12.2% to 251,462. Redfin attributed the decline in investor deals to high interest rates, higher home prices and a sluggish rental market, which it said made investing less lucrative. This was the sixth straight year-over-year drop in investor buying – but far less than the 44% drop in 2022.

Nevertheless, Redfin said its agents in California and Florida reported that the market was still flourishing in their states. “There just aren’t enough properties to go around, which is putting a cap on how many properties investors can buy,” said a Florida realtor.

Some investors have found other ways to increase returns, according to the AJC. “In their pursuit of higher returns, the largest firms aggressively increase the cost of housing through rent hikes and fees, while skimping on maintenance and passing many traditional landlord responsibilities on to the tenants themselves,” the Atlanta newspaper reported.

The typical cost of homes investors bought was $453,271 in 4Q 2023, compared to $426,573 the previous year. In total they spent $32.3 billion, slightly less than $33.6 billion in 2022. Redfin does not expect a rebound in the immediate future. That might change if the Fed lowers interest rates.

Meanwhile, Congress has shown signs of getting involved. The End Hedge Fund Control of American Homes Act, introduced by Democrats in the House and Senate, would ban hedge funds from owning single-family homes and require the sale of those they own over a 10-year period. Another bill, the Stop Predatory Investing Act, would prevent investors who acquire 50 or more single-family homes from deducting interest or depreciation on those homes. Both bills are opposed by the National Rental Home Council.