The market may not be ideal, but according to a new survey, most real estate investors are feeling good about it as we hurtle toward 2024.
RCN Capital’s fall investor sentiment survey shows that nearly three in four investors think market conditions are better or at least the same as this time last year. Another three-quarters believe the market will either improve or hold steady for the next six months.
“Despite higher home prices, higher financing costs, and limited inventory, real estate investors continue to express optimism about market opportunities today and in the months ahead,” said Jeffrey Tesch, CEO of RCN Capital, in a press release. “Investors continue to play an important role in the housing market.”
He’s right about that: According to a recent report from data firm CoreLogic, investors account for 26% of single-family home sales. In June—the most recent data available—investors made a whopping 82,000 purchases.
Just what types of investors are those, though? And what headwinds will they face as we finish 2023? Here’s what you need to know.
Small investors (those with less than 10 properties) account for the bulk of investment purchases at nearly 50%. Medium-sized investors (10 to 99 properties) come in second, at around 35% of all purchases.
While fix-and-flip investors typically fall into those categories, their activity waned significantly in 2022, likely on the backs of rising mortgage rates. They appear to be on the way up, though—12% of investors who purchased a home in December 2022 resold by the end of June 2023—up slightly from just a few months prior.
That upswing tracks with what RCN’s survey shows. According to the findings, fix-and-flip investors are particularly optimistic about the future, with half saying they think market conditions will improve in the next six months. (Under a quarter of rental property investors said the same).
“Fix-and-flip investors seem much more optimistic about future opportunities,” says Rick Sharga, CEO of CJ Patrick Company, in a press release. “That may be an indication that flipping activity has bottomed out, but may also be a reflection of current challenges in the rental market, with rates continuing to decline even as more rental inventory comes online.”
Prepare for Storms
Though investors—particularly fix-and-flip ones—seem to be optimistic, that doesn’t mean things will be easy. There are still plenty of challenges to be faced in the coming months, some of which we have little idea of how they’ll actually play out.
For one, a potential recession is afoot. (Deutsche Bank actually puts the chances at 100% now).
There’s also another possible government shutdown looming in November. And while Congress has eked out a solution in the last-ditch hours of budget meetings in the past, it’s now down a Speaker of the House—making the chances of another compromise even smaller.
Finally, continued high mortgage rates are throwing a kink in things, too. While today’s rates certainly aren’t at the highest levels the U.S. has seen, they’re still at multidecade highs. And according to most forecasts, they’re going to stay fairly high for a while. Fannie Mae’s latest forecast projects a 7.1% average mortgage rate by year’s end and 6.8% in the first quarter.
That’s a small dip, at least, but it’s unlikely to give investors much financial relief—especially when 76% cite the cost of financing as the biggest issue they face these days.
The silver lining for investors might be waning buyer competition and increased need for rentals that continued higher rates can cause. As RCN Capital put it: “Investors continued to see the impact of higher mortgage rates in their local markets. Over 30% have seen a decline in demand for owner-occupied homes; almost 21% have seen an increase in demand for rental properties; and 37% have noted both trends.”
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.