Investors bought record share of low-priced housing in fourth quarter: Report

Investors bought more than a quarter of lower-priced homes in the fourth quarter of 2023 as mortgage rates and home prices hover well above their pre-pandemic baseline. 

Investors bought a record-high 26.1 percent of low-priced U.S. homes in the fourth quarter, according to real estate data company Redfin. The company defines low-priced homes as those that fall into the bottom third of local sale prices in large metropolitan areas.

“Elevated home prices and mortgage rates, along with sluggish rents, have made low-priced homes increasingly attractive to investors,” the company said in a statement.

Redfin identified investors “as any buyer whose name includes … LLC, Inc, Trust, Corp, Homes” or as “any buyer whose ownership code on a purchasing deed includes … association, corporate trustee, company, joint venture, corporate trust.”

Investor purchases through all levels of the housing market are slowing, falling to 46,419 in the fourth quarter, the lowest level since 2016. That decrease tracks a wider slowdown in home purchases.

Housing inflation came in at 6.0 percent annually in the Labor Department’s January consumer price index, double the pace of headline inflation, which fell to 3.1 percent.

Increases in monthly shelter costs have been rising since October, jumping 0.6 percent last month and constituting over two-thirds of overall monthly inflation.

Housing had been getting more expensive as the Federal Reserve had been raising interest rates in response to elevated inflation. But housing inflation has been coming down since the Fed started pumping the brakes on rate hikes about a year ago.

Mortgage rates have fallen from a high of 7.9 percent in October to 6.6 percent this month, according to government mortgage provider Freddie Mac. Economists expect that trend to continue.

Median home sale prices have fallen to $417,000 off a recent peak of $479,000 in 2022, although they’re still markedly above the trend line of the decade before the pandemic. 

The Fed has yet to cut interest rates, though markets widely expect cuts at some point this year. Following another mighty January jobs report, markets are anticipating the Fed will hold rates steady at a range of 5.25 to 5.5 percent at its next meeting in March.

The U.S. homeownership rate, which is the number of people who live in homes they own as a share of total occupied housing, dropped to 65.7 percent in the fourth quarter, about where it was a year earlier, according the Census Bureau.

Homeownership rates among young people are higher now than they were before the pandemic, standing at 38.1 percent compared to 37.6 percent at the end of 2019.

About 90 percent of U.S. housing units in the fourth quarter of 2023 were occupied and 10 percent were vacant, Census data shows. Owner-occupied housing units account for about 59 percent of total housing, while renter-occupied homes made up 31 percent.