Investors predict that housing market conditions will continue to improve

RCN Capital CEO Jeffrey Tesch (Credit: RCN Capital)

Real estate investor sentiment continued to improve in the U.S., increasing by eight points from the previous quarter, according to the Fall 2024 RCN Capital/CJ Patrick Company Investor Sentiment Index. Sixty-eight percent of investors viewed today’s market as better or much better than it was a year ago, compared to only 13% who felt it was worse or much worse. Investors were equally bullish on where the market is headed, with 71% expecting it to continue to improve, while only 9% expected it to decline – the highest percentage of positive responses and lowest percentage of negative responses since the inception of the RCN Investor Sentiment Survey.

The RCN Capital/CJ Patrick Company Investor Sentiment Index (ISI) tracks the pulse of real estate investors across the country and gauges their market outlook based on their responses to four key questions:

Current Market Outlook – How does the environment for residential real estate investing compare to one year ago?
Future Market Outlook – What’s your outlook for residential real estate investing over the next 6 months compared to today?
Expected Home Price Increases – What do you expect home prices to do over the next 6 months?
Number of Properties Compared to Past 12 Months – How does the number of properties you plan to invest in over the next 12 months compare to the number of properties you’ve invested in over the past 12 months?

“Investor sentiment is almost twice as positive today as it was in the third quarter of 2023, and they’re even more optimistic about the future,” said RCN Capital CEO Jeffrey Tesch. “It seems likely that investors are reacting to improving market dynamics – financing costs declining, the inventory or homes for sale increasing dramatically, and home price appreciation slowing down, but still rising.”

Flippers More Optimistic Than Rental Investors – but More Concerned About a Recession

Fix-and-Flip investors were significantly more positive about market conditions than were rental property investors. Over 80% of flippers believe that market conditions have improved over the past year, and more than 83% expect things to continue to improve. Conversely, under 47% of rental property investors believe that today’s market is better than last year’s, and about 51% expect conditions to improve over the next 6 months. It’s worth noting, however, that both responses from rental investors were significantly higher than they were in the Summer 2024 survey.

Investors overwhelmingly believe that home prices will continue to rise: 70.6% of all respondents, 74.2% of flippers, and 58.5% of rental investors agree. Most also believe that the country is likely to enter a recession in 2024, with 63.2% of all respondents answering affirmatively. But there’s a stark difference between flippers and rental investors in this category, with only 38.7% of rental investors calling for a recession compared to 74.7% of flippers.

High Cost of Financing Still Cited as Biggest Challenge

The high cost of financing continues to be the most frequently cited challenge by investors, as it has been since the inception of the survey, being noted by 63% of the respondents. Lack of inventory was cited just under 40% of the time, and rising prices were cited 36.5%. Competition from investors (43.6%) and homebuyers (32.8%) rounded out the top five biggest challenges.

Perhaps due to declining mortgage rates and the recent rate cut by the Federal Reserve, investors believe that financing challenges might improve a bit: 52.5% of the respondents expect the high cost of financing to be among their biggest challenges 6 months from now (a drop of 10 points). Competition from large investors is expected to increase, being cited by 46.3% of the investors. Low inventory (40.5%), competition from homebuyers (32%), and rising home prices (31%) are also expected to be challenges in the future.

Flippers and rental property investors had similar views on challenges both today and in the future, with one notable exception. Rental investors cited cost and availability of insurance as a major challenge today 30.6% of the time (the fourth most cited challenge) compared to only 17% by flippers. Both noted that the high cost of financing was their biggest challenge today – and would continue to be 6 months from now – and mentioned competition from investors and homebuyers, lack of inventory, and rising home prices as their other major concerns.

(Source: Fall 2024 RCN Capital/CJ Patrick Company Investor Sentiment Index)