Investor sentiment nosedives as rates rise, rents fall 

A new report finds low housing inventory, plummeting affordability and higher borrowing costs have affected investors as much as regular homebuyers — perhaps more in some cases. 

Sentiment takes a hit as mortgage rates climb

According to the latest RCN Capital/CJ Patrick Company Investor Sentiment Index, investors have a much less optimistic outlook on the market than they did just a few months ago. 

Only 35% of investors surveyed viewed fourth-quarter market conditions as being "better" or "much better" than they were the previous year — a huge drop from the previous quarter, when 68% felt market conditions had improved over the prior 12 months.

Sentiment had been on the upswing since the spring, rising significantly over the next two quarters. But the end of year brought ever-increasing mortgage rates, souring investor attitudes. When asked to list the main challenges affecting their real estate business, the high cost of financing came out on top, with 52% of investors citing that as an issue. Around 20% of respondents said it was hard to secure a loan.

Supply, affordability and insurance woes

Lack of inventory and rising home prices were also cited as major hurdles, tying for second place among the top challenges investors face, while nearly a third of respondents said competition from institutional investors was affecting their business. 

Insurance was also a concern, and investors expect it to become an even bigger challenge — particularly as extreme weather events and natural disasters increase in frequency and intensity. Insurance-related issues — either high costs or the inability to insure properties — impacted purchasing decisions for 70% of the investors surveyed, while more than half said those issues caused them to miss out on a deal. 

Rental investors in Florida and California — states that have seen premiums skyrocket and insurers pull out — were most concerned about insurance challenges. The survey was conducted prior to the recent Los Angeles fires, which are likely to further complicate the insurance landscape in the Golden State. 

The Trump factor

Researchers noted that the majority of investors surveyed in the fall — prior to the presidential election — predicted a win for Harris. But with Trump taking office this month, investors expect to be impacted by the increased tariffs and mass deportations proposed by his administration. Higher costs, supply chain disruptions, lower margins or returns, and a lack of skilled workers were top concerns.

At the same time, more than a third of investors were hopeful about some of the policies that could be enacted under Trump, including construction incentives for affordable homes, regulatory relief and more development on government lands.

"An administration headed by a long-time real estate developer like Donald Trump could result in a friendlier environment for real estate investors over the next four years," said Rick Sharga, CJ Patrick Company CEO.

Flippers see more opportunity than landlords

Despite all of the challenges for investors, flippers were less discouraged than rental investors, "who tend to be less optimistic," said RCN Capital CEO Jeffrey Tesch. He also noted that the winter survey had more rental investor respondents, which "may have colored the results a bit."

Among fix-and-flip investors, 45% said market conditions have improved in the last year, and nearly half expect that trend will continue over the next six months. In contrast, just 31% of rental investors felt that conditions were better compared to a year ago, and only 33% anticipate a better market in the months ahead.  

Falling rents are one culprit: Redfin reported that asking rents declined in December to their lowest level in almost three years, but home prices keep rising — putting landlords in a less favorable position relative to home flippers.