'Profit centers for Wall Street': Real estate investors snapped up over 25% of affordable US homes last quarter — the highest share on record. Is the free market hurting hopeful home buyers?
Across the country, home buyers turning over rocks to find their first homes are now competing with wealthy investors seeking to pad their portfolios with cheap properties.
In fact, investors bought 26.1% of low-priced U.S. homes that sold in the fourth quarter, according to a recent Redfin report. That’s not only the highest share on record, it’s also a stunning 24% surge from last year.
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In comparison, investors purchased just 13.6% of mid-priced homes and less than 16% of high-priced homes that sold in the fourth quarter. Redfin separates home purchases into three buckets, with low-priced homes falling into the bottom third of local sale prices.
“There are a lot of investors out there fighting for properties,” Juan Castro, a Redfin Premier real estate agent in Orlando, Florida told the residential real estate services company. “There just aren’t enough properties to go around, which is putting a cap on how many homes investors can buy.”
Why investors are turning to cheaper properties
Overall, investors purchased one in every five homes that sold in the fourth quarter, says Redfin, with single-family homes representing more than 68% of investor purchases.
The second largest share came from condos and co-ops (over 19%), followed by townhouses and multi-family properties.
But most notably, investors are turning to lower-priced properties, especially as mortgage rates and home prices remain high. And should the housing market become even more strained, investors will be in a perfect position as they can just sit back and build equity in these cheaper homes.
“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,” said Carrie Caruthers, Redfin Premier real estate agent in Riverside County, CA. “When they find those properties, they pile in.”
Caruthers notes she’s also seen a recent uptick in foreclosures — properties seized by lenders that have gone into default after their owners have stopped making their mortgage payments. These homes typically sell at a discount since they come with risks such as poor maintenance and neglect.
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Are investors hurting the average US house hunter?
Some advocates say investors own just a sliver of single-family rental housing across the country, arguing this practice doesn’t have a major impact on the market. But others fear the practice could be driving up housing prices and rents, and exacerbating the ongoing housing shortage.
Redfin points to one recently published study conducted by researchers from the University of Southern Carolina’s Marshall School of Business, Arizona State University’s W.P. Carey School of Business and the Federal Reserve Bank of Philadelphia said it found “no evidence that [single-family REITs] crowd out residential home-buyers or increase home prices.”
However, Brian An, a professor of public policy at Georgia Tech, who decided to analyze more than 1 million property sales in the Atlanta metropolitan area from 2007 to 2016, says large investors could be crowding out home buyers, particularly in majority-nonwhite, lower-income suburban neighborhoods.
An’s research revealed that global investment firms buying up local Atlanta properties are hurting Black families in particular — accounting for three-quarters of the decline in African American homeownership.
“This makes homebuying even more challenging for middle-class families of color, as they get pushed out of the bidding market by global investors,” he writes for The Conversation.
Some lawmakers have also proposed legislation to restrict tax breaks for private equity and big investors that give them an advantage in the market for affordable single-family homes.
“In every corner of the country, giant financial corporations are buying up housing, taking advantage of big tax breaks, and driving up both rents and home prices,” said Sen. Jeff Merkley (D-OR) in the press release. “The affordable housing crisis that so many of our communities are facing is leaving working families behind, and private businesses who are snatching up any available homes to pad their own real estate portfolios are pouring fuel on this already out-of-control fire.”
“The housing in our neighborhoods should be homes for people, not profit centers for Wall Street.”
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
