Residential real estate investors bought 18% of all homes that sold in the fourth quarter, and, with elevated home prices and sluggish rents, they’re increasingly attracted to lower-priced homes, according to Redfin.
Last quarter, investors accounted for 26.1% of sales of homes Redfin considers low-priced, in the bottom third of the market, and that’s a record share of low-priced homes investors purchased.
Redfin defines investor buyers as any institution or business that purchases residential real estate, including corporations, LLCs and real estate investment trusts.
In the D.C. market, the overall share of investment buyers was considerably less, accounting for 10.9% of home sales in the fourth quarter, according to Redfin. That’s partly because D.C. is an expensive market — but that may not be the only reason for lower investor appetite for area homes.
“D.C. is a very expensive market, so it is harder for investors to finance those purchases, or to diversify in expensive markets,” said Daryl Fairweather, chief economist at Redfin. “Also, D.C. has strong renter protections, and investors might find those unappealing, because they are ultimately going to be the landlords.”
The impact on the market for first-time homebuyers is significant. Investor-buyers have more resources, may be less sensitive to borrowing costs and have deeper market knowledge, increasing pressure on an already competitive market for first-time buyers.
Fairweather said investment buyers also tend to have a positive impact on the overall housing market.
“These real estate investment trusts are buying properties and renting them out. The people they are renting them out to are typically lower-income, or have less wealth than a first time homebuyer. So, yes the investor purchaser of the home may be boxing out a first-time homebuyer, and that may seem bad from an equity perspective, but the person who is actually renting the home probably has fewer resources than a first-time homebuyer,”
Pointing the finger at investor-buyers, she said, is not the solution.
“If all we did was ban investors from buying homes, it would actually make it harder for renters to find place to live, but it would make it easier for first-time homebuyers,” Fairweather said. “What we really need to do is increase the overall supply of housing so everyone can find a place to live, regardless of how they are going about it, whether they are buying or renting.”
Last summer, Democratic senators Elizabeth Warren and Sherrod Brown, who chairs the Senate Banking Committee, introduced the Stop Predatory Investing Act to restrict tax breaks for large corporate investors that buy local homes, arguing it drives up costs. It would prohibit investors who acquire 50 or more single-family rental homes from deducting interest and depreciation on them.
A research paper published in March disputed claims that single-family real estate investment trusts are increasing home prices. That paper was authorized in part by the Marshall School of Business, Arizona State University’s W.P. Carey School of Business and the Federal Reserve Bank of Philadelphia.
Regardless, more buyers for fewer properties continues to put upward pressure on home prices. In December, the total supply of homes for sale was 5.1% lower than a year earlier, and far below pre-pandemic levels.
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