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Portfolio > Alternative Investments > Real Estate

Real Estate Investor Sentiment Surged in Q2: Survey

By Michael S. Fischer

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What You Need to Know

  • Two-thirds of those surveyed said insurance issues had caused them to miss out on an investment opportunity.
  • Seventy-five percent of flippers believe that the U.S. economy is likely to enter a recession this year.
  • Investors seem to expect more competition from both institutional and consumer homebuyers six months from now.

Real estate investors are feeling upbeat despite numerous ongoing challenges, according to the RCN Capital/CJ Patrick Company Investor Sentiment Index, published Wednesday.

Investor sentiment shot up by 16% quarter over quarter, with 60% of surveyed respondents viewing the current market as better or much better than it was a year ago, compared with 20% who said it is worse or much worse. Sixty-one percent expect it to continue to improve, while only 14% expect a decline.

RCN Capital said this was the highest percentage of positive and lowest percentage of negative responses since the survey’s inception. 

The index is based on a quarterly survey conducted by market intelligence firm CJ Patrick Co., which takes the pulse of real estate investors across the country, identifying market challenges and opportunities and seeking feedback on current trends and events.

Insurance Headaches and Squatters

Some 84% of the investors surveyed reported that rising insurance costs or the unavailability of insurance coverage was a factor in their decisions to buy and sell real estate. Two-thirds said these insurance issues had caused them to miss out on an investment opportunity. 

Both of these findings were significantly higher than in last quarter’s report, RCN said.

The problem is particularly acute for investors in states that have experienced unusually high levels of extreme weather events in recent years. All respondents who invest in California properties cited insurance issues as a consideration in their decision-making, and 73% said insurance problems had cost them a deal. 

In Florida, 83% acknowledged that they had factored insurance into their investment planning, and 67% noted that insurance issues had caused them to miss out on an opportunity.

The prevalence of squatters is another growing issue, cited by three-quarters of respondents in their markets. Fifty-three percent said they had experienced problems with squatters on a personal level. 

The problem appears to be more severe for fix-and-flip investors than for rental property owners: 90% of flippers cited squatters as an issue, compared with about half of rental property investors.

Market Sentiment Differences

Market sentiment and outlook of fix-and-flip investors and rental property investors contrasted sharply in the new survey. Seventy-three percent of flippers said the market is better or much better than it was a year ago, compared with only 35% of rental property investors. Similarly, 75% of flippers expect market conditions to continue to improve, while just 37% of rental property owners do so. 

Investors who said market conditions are worse than a year ago were similarly split, with only 11% of flippers saying conditions are worse, compared with 36% of rental property investors who responded that way.

RCN said it does not appear that these differing opinions are based on expectations for the U.S. economy. Despite being more optimistic about the market, 75% of flippers believe that the economy is likely to enter a recession this year, while only 35% of rental property owners do. 

Both groups expect home prices to continue to rise, with 88% of flippers and 61% of rental property owners anticipating price increases. And nearly all of these investors said they plan to continue investing primarily in their home states.

Challenges Confronting Investors

Investors in the summer survey mentioned many of the same factors as major challenges to their success as in previous ones, although their responses reflected some changes to current market dynamics. 

Seventy-four percent of respondents cited the high cost of financing — the most frequently mentioned challenge. Lack of inventory replaced rising home prices as the second-most cited challenge. Investors also continued to say that competition from institutional investors and from traditional consumer homebuyers are major issues.

Looking ahead, investors appear to see market conditions shifting slightly, as only 67% noted the high cost of financing as a top concern, and also cited inventory issues and rising prices less often. At the same time, respondents also seem to expect more competition from both institutional and consumer homebuyers six months from now.

Some of these trends were similar for both flippers and rental property investors. Seventy-seven percent of flippers and 76% of rental investors said financing costs are a major challenge, and 46% and 45%, respectively, cited lack of inventory. 

But some significant differences about key challenges also emerged between the two groups. Fifty-three percent of flippers but only 35% of rental property investors cited competition from institutions, whereas 53% of the latter complained about rising home prices while just 21% of flippers did.

“It’s interesting to see some of the nuances in the investor sentiment data, and consider some of the implications,” Rick Sharga, CEO of CJ Patrick Company, said in the statement. “It appears that recent reports of increased flipping activity — and improvements in flippers’ gross margins — may be fueling some of the optimism from that set of investors. 

“Meanwhile, flat and declining rent rates, an influx of hundreds of thousands of apartments and rising property acquisition costs may be dimming the outlook for some rental property investors.”

The median home sale price in Henderson, Nevada, has grown nearly 8% year over year, according to Redfin. Credit: Adobe Stock

Michael S. Fischer

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