T
he Investor Sentiment Index took a significant hit at the end of 2024 as interest rates rose, becoming the top challenge for investors. Other hurdles include low inventory, high home prices, and competition from institutional investors, with insurance issues also on the rise. Home flippers were more optimistic than rental investors, who saw rents decline in the fourth quarter.

    A new report highlights how low housing inventory, plummeting affordability, and higher borrowing costs have affected investors as much as regular homebuyers. The RCN Capital/CJ Patrick Company Investor Sentiment Index shows a sharp drop in investor optimism, with only 35% viewing market conditions as better or much better than the previous year.

    Mortgage rates climbed throughout the year, souring investor attitudes and making financing costs the top challenge for investors, cited by 52%. Around 20% of respondents struggled to secure a loan. Low inventory and rising home prices tied for second place among challenges, while nearly a third said competition from institutional investors was affecting their business.

    Insurance issues were also a concern, with 70% of investors impacted by high costs or inability to insure properties. Rental investors in Florida and California were most concerned about insurance challenges. The survey was conducted before the recent Los Angeles fires, which will likely further complicate the insurance landscape.

    Investors predicted a win for Harris prior to the presidential election but now expect increased tariffs and mass deportations under Trump's administration to impact their business. Higher costs, supply chain disruptions, lower margins or returns, and a lack of skilled workers were top concerns.

    However, over a third of investors were hopeful about some of Trump's policies, including construction incentives for affordable homes, regulatory relief, and more development on government lands. Flippers were less discouraged than rental investors, with 45% saying market conditions improved in the last year and nearly half expecting this trend to continue. In contrast, only 31% of rental investors felt conditions were better compared to a year ago, and only 33% anticipate a better market ahead. Falling rents and rising home prices put landlords at a disadvantage relative to flippers.