U.S. real estate investor activity sees decline; condo purchases hit lowest Q4 level since 2012

Investing.com -- The U.S. real estate sector is witnessing a decline in investor activity, impacted by a sluggish homebuying demand, a stagnant rental market, economic uncertainties, and high interest rates. The situation has led to a 13% year-over-year fall in investor purchases of condominiums, reaching the lowest Q4 level since 2012.

According to a report from Redfin (NASDAQ:RDFN), a tech-powered real estate brokerage, U.S. real estate investors bought 47,004 homes in Q4, the lowest for the period since 2016. This represents a 3.9% drop from a year earlier, marking the most significant decline in a year.

Several factors are contributing to the decrease in investor activity. High home prices and elevated mortgage rates are slowing the housing market. Furthermore, home-price growth is decelerating, inventory is increasing, and homebuying demand is sluggish, making some investors hesitant to purchase real estate for flipping. Economic and political uncertainties are also making real estate investments riskier, leading some investors to shift towards other more stable investments, like bonds. High interest rates maintained by the Federal Reserve are also impacting investors who rely on loans to cover home-flipping costs and other expenses.

In terms of dollar value, investors purchased $36.5 billion worth of homes in Q4, a 6.3% increase year over year, mirroring the rise in home-sale prices over the same period.

Investor purchases are also making up a smaller share of total home purchases than usual for the end of the year. Real estate investors bought 17.1% of U.S. homes sold in Q4, the lowest level for the period since 2020, down from 19% a year earlier.

In Florida, investor purchases fell significantly, with a 27.5% year-over-year drop in Orlando, followed by declines in Miami and West Palm Beach. This is partly due to the uncertain outlook for earning money from real estate investments in the state, with home prices, especially condo prices, dropping amid increasing natural disasters and soaring HOA fees and insurance costs.

On the other hand, investor activity and market share increased in the Bay Area. Seattle saw the highest increase, with investor purchases up 33.8% year over year in Q4.

Investors bought 8,220 condos in Q4, a 13% decline from a year earlier, the biggest drop among all property types. This decline is primarily due to the slowing condo market, especially in Florida, which is dealing with a surge in HOA fees caused by worsening natural disasters.

Nearly seven in 10 properties (69.4%) investors purchased in Q4 were single-family homes, while 17.5% were condos, 7.5% were townhouses, and 5.6% were multi-family properties, the highest share for multi-family since 2019.

Investor purchases of high-priced homes fell in Q4, but those of more affordable homes remained steady. Of all investor purchases, 47.3% were low-priced homes. Three in 10 were high-priced homes, and 23.2% were mid-priced homes. Despite this, investor market share fell for all price tiers, including the most affordable one.

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