Dissecting the Data
What a Year’s Worth of Investor Input Tells Us About the Future
by Mitchell Zagrodnik
RCN Capital and CJ Patrick Company’s Investor Sentiment Survey, which launched initially in Spring 2023, gauges real estate investors’ views on market conditions. The survey features a static set of questions that allow data to be compared and analyzed for trends over time. Periodically, more topical questions will also be included in the survey. With this being an election year, the Fall 2024 iteration included questions about the presidential candidates, and how investors see the market performing depending on which nominee is victorious.
The Fall 2024 Survey results showed that fix-and-flip investors had an overall more positive outlook about market conditions than long-term rental investors. Where 80% of flippers believe that market conditions have improved over the past year, only 47% of rental property investors believe that today’s market is better than last year’s.
As we dive into the overall sentiment from the participants in the most recent survey, the contrast between flippers and rental investors is a notable theme throughout this piece. And now with over a year’s worth of data from these reports, we can compare survey responses year-over-year.
Overall Investor Sentiment
As of Fall 2024, investor optimism was the highest recorded in the six quarters of the survey’s existence. When asked if market conditions are better today than they were a year ago, 68% of participants responded yes, and over 71% believed that conditions would continue to improve in the following months. Declining financing costs, increased inventory, and a gradual slowdown in price appreciation are contributing factors to that optimism.
The three biggest challenges facing real estate investors are listed below, and we were able to compare the responses to the same question during the Spring 2023 survey:
» High Cost of Financing // 62.88% in Fall 2024 compared to 72.70% in Spring 2023
» Competition from Institutional Investors // 43.56% in Fall 2024 compared to 33.88% in Spring 2023
» Lack of Inventory // 39.57% in Fall 2024 compared to 47.70% in Spring of 2023
The shift towards a more optimistic outlook for the real estate investment space is increasingly apparent after seeing this year-over-year change in responses. A majority of real estate investors utilize some form of financing in order to secure properties, so the nearly 10% drop in the responses year-over-year is telling.
It is also notable that concern over a lack of inventory has dropped by about 8% year-over-year. Low housing inventory has been a consistent obstacle facing homebuyers over the past several years. This issue is being addressed with an increased number of new residential construction projects, specifically single-family homes, hitting the market. According to data provided by the Department of Housing and Urban Development in September 2024, the total recorded house completions in August 2024 was 1,788,000. This is the highest number on record in the month of August within the last five years.
These numbers should give people confidence that this problem is being addressed.
Insurance Costs Proving to be an Ongoing Issue
Insurance is a crucial factor in the homebuying process, and lately this necessary step has become a consistent deal killer. When asked if rising insurance costs or the inability to insure properties factored into the decision to invest in real estate, 80% of survey participants in the Fall 2024 iteration responded “yes.”
For fix-and-flip investors, 82.9% felt that cost and availability of insurance was a deciding factor in their real estate investments, whereas only 69.4% of rental investors felt that way. Based on the responses provided by the survey, insurance issues have caused more flippers to miss out on a deal than rental investors by a difference of 73.3% for flippers versus 45% for rental investors. That stark contrast emphasizes the problems that flippers are facing when it comes to insurance, and these issues appear to be even more apparent in certain areas of the country.
The issue of insurance coverage is especially prevalent in states that are susceptible to extreme weather events, with California and Florida garnering the most attention. Florida has recently experienced devastating hurricanes, which in general, are unfortunately common in the southern region of the United States. California has been susceptible to large-scale wildfires.
These natural events have caused insurance rates to skyrocket, and even some insurance companies to leave these states entirely. In California, 97% of investors have experienced issues with insurance cost and availability, and in Florida that number is at 93%. The breakdown of each state based on investment strategy is below:
California-based Investors’ likelihood of missing out on a deal due to insurance:
» Fix-and-Flip: 87.5%
» Rental Investors: 50%
Florida-based Investors’ likelihood of missing out on a deal due to insurance:
» Fix-and-Flip: 60%
» Rental Investors: 60%
The breakdown shows it has been more of an issue for flippers compared to rental investors in California, but in Florida the numbers are relatively similar by investment
type. It will be fascinating to see if this continues to be a problem over the next 12 months.
Presidential Election Factors
Of the participants in the Fall 2024 survey, 51.4% are backing Kamala Harris versus 40.5% for Donald Trump. Harris is also seen as the candidate who will lead to a better investment environment. 47.22% believe that, while 39.20% see a Trump presidency as more beneficial to investors.
What is interesting is how flippers and rental investors differ in which candidate will lead to a better investing environment.
Fix-and-flip investors lean towards Harris with 56.9% believing she will create a better investment market, whereas 32.6% favor Trump in that regard.
The opposite is the case for rental investors. 45% of the respondents believe Trump will create a more favorable investing environment, versus 39.6% believing Harris will.
Some of the major talking points of the Harris campaign are policies aimed directly at long-term rental investors, like the controversial topic of rent control. Based on that, it makes sense for investors that primarily own rentals to favor Trump.
Overall, both campaigns have acknowledged the need to strengthen the housing market and supply more homes. This optimism can stem from the fact that there is a clear effort to address the housing issue in general, which can open more opportunities.
An Optimistic Outlook
Overall takeaways from the survey indicate that investors are more optimistic about the real estate investment space today compared to one year prior. However, it does seem as though investors are still moving forward with some caution and continuing to be selective about the types of deals they look for. Participants believe that the country is likely to enter a recession in 2024, with 63.2% of all Fall 2024 respondents believing that will be the case, and 22.09% answering that they are uncertain.
It is likely that by the time this article is published we will have the results of the election, and it will be interesting to see the impact that it has on the future of the economy. It will also be intriguing to revisit these topics in one year’s time, when the Fall 2025 Investor Sentiment Survey is released.
