A new survey has revealed that real estate investors are not viewing the market as favorably as they once did in light of low inventory and rising costs.
The survey by RealtyTrac, a property information company, found that 48% of the 300 surveyed individual real estate investors believed that the investment market is worse or much worse than it was a year ago.
In addition, almost 63% of survey respondents listed the rising cost of homes as a major challenge for residential real estate investing, while 57% said the lack of available inventory as the second-biggest challenge.
“Real estate investors continue to face the dual challenges of low inventory and rising home prices,” said Rick Sharga, executive vice president at RealtyTrac. “Coupled with strong competition from traditional homebuyers and rising material and labor costs, it’s no wonder that individual investors believe that the market is less favorable today than it was a year ago.”
Looking forward, 36% of investors do not see the market conditions improving in the next six months. This sentiment is not just caused by low inventory and high prices, but also competition from other buyers (28%) and increased labor and material costs (36%).
“Still, many investors believe that ongoing competition from homebuyers will continue to be a challenge, and 27% said it will likely remain a top concern six months from now,” the report said. “The unprecedented demand from homebuyers has created an unusual market dynamic for individual investors: instead of competing with larger institutional investors, mom-and-pop investors find themselves competing with more traditional consumer homebuyers.”
According to RealtyTrac, the 300 investors that were surveyed are representative of investors as a whole—most were “mom-and-pop" investors who purchase 1–10 properties a year are those who exert the most influence on market conditions.
“Nearly 90% of the 19 million single-family rental properties in the country are owned by mom-and-pop investors, while the largest institutions—collectively—own less than 2%,” the report found. “The fix-and-flip market similarly is populated by thousands of small investors who average about one flip a month, but who now face growing competition from the so-called iBuyers like Opendoor, Offerpad and Zillow, which are essentially institutions that do flipping at scale.”
“Investors are more optimistic about the future than they are about current market conditions,” Sharga noted. “But they do worry about inflation—about 81% of the investors surveyed were concerned about inflation causing material and labor costs to rise, making affordability an issue for prospective homebuyers and renters, and increasing the costs of financing.”
A full copy of the Fall 2021 RealtyTrac Investor Sentiment Survey can be found here.