Nearly half of individual real estate investors consider the current environment more difficult for them now than one year ago, with rising rates and inflation adding to their worries.
Approximately 49% of investors said market conditions had deteriorated in the last 12 months, a notch higher than four months ago, according to the Winter 2021 RealtyTrac Investor Sentiment Survey. The share who thought conditions were the same over the past year came in at 30%, while 21% said they had improved. Among those who participated in the survey, 54% planned to buy properties to rent, while 34% identified themselves as fix-and-flip investors.
Similar to current sentiment among home buyers, diminished availability and accelerating prices are leading causes of worry for residential investors, with 63% indicating housing shortages as a top challenge for their businesses and 60% citing the high costs of home purchases. In RealtyTrac’s prior fall survey, a greater number were concerned about prices ahead of inventory, although both topped their list of concerns.
“Together with supply chain disruptions, which have caused product shortages and increased material costs, it is not surprising that individual investors think that the market is not as healthy today as it was a year ago,” said Rick Sharga, executive vice president at RealtyTrac, an affiliate of Attom Data Solutions.
Looking ahead, though, the share who see conditions worsening over the next six months dropped to 31% of respondents, while those who expect them to remain the same or get better amounted to 43% and 26% respectively.
Over the next half year, inventory and high prices will remain high on investors’ minds. About 57% said the current housing shortage is likely to continue to be a business challenge and 46% mentioned the still-increasing costs of homes. The cost of supplies was cited by 35%. The threat of higher interest rates is also increasingly a reason for pessimism among individual investors, with 34% seeing it as a potential problem for them in the next half year. According to Freddie Mac, the average 30-year rate has risen by over 50 basis points since mid December.
Inflation, which increased 7% on an annual basis in December, has become a source of concern for a bigger segment of the residential investment community as well.
“About 88% of the investors surveyed were concerned about inflation having an impact on their business, whether that was due to higher material and labor costs, higher interest rates, or rising consumer prices that might weaken demand from potential home buyers and renters,” said Sharga. The percentage of investors noting inflation as a factor was up from 81% in the previous survey.
While detrimental to homeowners, foreclosure activity may provide some benefit to investors should they increase in 2022 and add inventory to the market, as some are anticipating. Nearly 43% expect there will be more foreclosures than seen over the past two years, but that they’ll fail to reach the pace seen immediately following the Great Recession, the survey found.
In a Senate hearing, Director Sandra Thompson said a raise to the required income threshold provided to affordable housing was on the table, while housing regulators also faced questions related to property insurance hikes and title insurance waivers.
