IRVINE, Calif. — Real estate investors believe the market is worse or much worse than it was a year ago, according to the RealtyTrac Winter 2021 Investor Sentiment Survey.
Around 49% of investors surveyed felt that conditions had deteriorated over the past year, while 30% believe conditions have remained the same over this period. Looking to the future, 43% believe that over the next six months their outlook for the real estate investment market is about the same as it is today, although 31% believe that they will be either worse or much worse.
The RealtyTrac survey attempts to uncover individual investors’ perspectives on real estate investing, the opportunities and challenges that exist in today’s market, and what the trends are in home prices and foreclosure activity.
Some key findings:
- About 49% of investors believe the investment market is worse or much worse than a year ago.
- Approximately 63% of survey respondents cited inventory availability as the top challenge facing the residential real estate investment industry today
- Rising house prices were named the second biggest challenge today (60%) by investors.
- 31% of survey participants expect house prices to rise 0-5% while 25% believe they will remain at current high levels over the next six months.
“Similar to our last two surveys, the issues of low inventory and rising home prices are the most frequently cited issues by individual investors across the country,” said Rick Sharga, executive vice president of RealtyTrac. “With supply chain disruptions causing product shortages and rising material costs, it’s no surprise that individual investors believe the market isn’t as healthy today as it is today. he was a year ago.”
Investors believe they will face the same challenges over the next six months – lack of inventory (57%) as well as rising house prices (46%) will remain the main obstacles for investors during this period. Similar to the previous survey, rising material costs remained the third biggest challenge (35%) expected over the next six months, although rising interest rates were a close fourth (34% ).
Another market factor that could negatively impact property investment over the next six months is the specter of higher inflation. Federal Reserve Chairman Jerome Powell recently acknowledged that rising inflation was not a transitory problem as initially believed – and investors are worried. About 39% of respondents believe that higher inflation will increase the cost of labour, materials and supplies, making it difficult to generate adequate profits. Meanwhile, 30% of respondents believe increased inflation can lead to higher mortgage rates that hurt affordability and weaken demand.
“A looming concern is that of inflation,” Sharga noted. “About 88% of investors surveyed feared inflation would impact their business, whether through rising material and labor costs, higher interest rates or rising consumer prices that could weaken demand from potential buyers and tenants.”
An increase in foreclosure activity could provide more affordable inventory for investors, offsetting some of the rising costs of inflation. A recent report shows foreclosures ended 2021 at historic lows, but nearly 43% of investors believe foreclosure activity will rise at above-normal rates but remain below the level seen during the Great Recession .
In what may reflect current market conditions, respondents to the winter and fall 2021 investor sentiment surveys included more investors who bought properties to rent than to resell. Around 54% of respondents planned to buy and rent properties, while only 34% identified themselves as fix-and-flip investors.