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How Confident Are Real Estate Investors in Today’s Market?

For the last year, we’ve been collecting data about investor sentiment. The idea is to understand how investors on BiggerPockets feel about the investment landscape and how they plan to manage their portfolios over the coming months.

It’s one of my favorite datasets to look at, especially recently. During these unusual times in the housing market, it’s helpful to know how other investors see the market and see if their interpretation of the investing climate matches your own.

With this data, I’ve developed three indices: the Buyer Confidence Index, the Seller Confidence Index, and the Rental Confidence Index. The BiggerPockets indices are scaled from -1 to 1. A score of 1 represents absolutely confidence, a score of zero indicates neutrality, and a score of -1 equates to a complete lack of confidence.

Let’s take a look at how investor sentiment has changed over the last several months.

Buyer confidence drops

BiggerPockets’ members’ confidence in buying into today’s market has dropped for the fourth straight quarter. The question asks respondents if they agree or disagree with the statement, “The next six months are a good time to buy an investment property.” In the most recent survey BiggerPockets Buyer Confidence Index (BCI) dropped to .13 in May down from .26 in February.

When we first began collecting this data back in July of 2021 the score sat at .36 and has seen consistent declines since.

This data should come as little surprise, as rapidly increasing home prices have made it increasingly difficult to find cash flow. Worries about a bubble and inflation are likely also dampening investor confidence.

Despite falling confidence, the Index remains positive, indicating that a (small) majority of investors still see the market as favorable. It is likely that historically low interest rates are the primer driver of the remaining investor confidence.

six months buy

When you look more closely at the data, you can see that the majority of this shift downward comes from a shift in survey respondents saying that they simply “agree” that it’s a good time to buy, rather than “strongly agree.” To me, this indicates a similar amount of investors are looking to get into this market, but will be more conservative in their approach.

Seller confidence jumps

In May, seller confidence jumped significantly according to the BiggerPockets Seller Confidence Index. This is unsurprising given the findings on buyer confidence, and it’s logical that these two indices are negatively correlated (when one goes up, the other tends to go down). The question asks respondents if they agree or disagree with the statement, “The next six months are a good time to sell an investment property.”

seller confidence

This one feels like an obvious conclusion. Everyone in the U.S., involved in real estate or not, knows that inventory is low, bidding wars are commonplace, and many properties are selling above asking price. A seller confidence score of .51 is the highest score we’ve seen for any metrics since we began collecting this data about a year ago.

Personally, I think selling a property is extremely easy right now, and the only thing holding this metric back is that sellers don’t know what to do with the proceeds of a sale. It’s difficult to get back into the real estate market, stocks are at very high valuations, and inflation is pending. It seems that some sellers would rather wait out the current uncertainty with their current portfolio than try to redeploy capital in today’s climate.

Rent growth confidence stays flat

This question asks respondents if they agree or disagree with the statement, “During the next six months rents are likely to grow.”

I was surprised to see the Rental Confidence Index (RCI) remain stagnant through 2021. Yes, it’s still up from last year, but there have been two major changes to the macroeconomic climate in 2021 that I personally believe will impact rents: employment growth and inflation fears.

rent confidence

While the jobs numbers have been lower than anticipated, people are getting back to work, which raises the prospect of wage and income growth. When income grows, rental increases typically follow.

With inflation signals at their highest level in a decade, the prospect of rent growth should grow as well. Of course, when prices in general increase, rent should follow suit.

So, what am I missing here? Do people generally think that inflation concerns are overblown?

Vacancy concerns tank

Further confusing me about the lack of confidence in rent growth is the fact that investors are less concerned about vacancies than they have been in at least a year (as far back as we have data).

vacancy concerns

To me, this is great news as I believe it signals further confidence in a broader economic recovery. It also shows that the increase in vacancy concerns we saw in January was a temporary blip.

In just a few months this index went from the average score respondent saying they “agree” that they are concerned about vacancy, to an average score of “disagree,” which is huge! While we only have four surveys to look at, it’s unusual for the indices to change that much in just a few months.

But as I said above, this makes me even more confused about the rent confidence. If investors are less concerned about vacancies, shouldn’t the potential for rent growth increase?

While this data tells a very interesting story about declining confidence in the investing market, I am really curious to hear more about your hypothesis. What do you think will happen over the next year or two? Are you buying, and if so, why? Or are you holding back and waiting for the market dynamics to shift?

Source
How Confident Are Real Estate Investors in Today’s Market? is written by Dave Meyer for www.biggerpockets.com

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