Housing MarketPolitics & MoneyReal Estate

Real Estate investors growing wary of market inflation

Roughly 50% of real estate investors felt market conditions worsened over the past year, according to recent data from RealtyTrac, an Attom Company.

Rick Sharga, RealtyTrac’s executive vice president, noted that the problems associated with low inventory and rising home prices are those most often cited by individual investors across the country.

“Together with supply chain disruptions which have caused product shortages and increased material costs, it is not surprising that individual investors think that the market is not as healthy today as it was a year ago.”

Increased material costs has remained as the third biggest challenge (35%) projected in the next six months, although rising interest rates is a close fourth (34%).

Another market factor that might negatively impact real estate investing in the following six months is the specter of higher inflation. Roughly 39% of respondents believe that higher inflation will increase the cost of labor, materials and supplies, potentially making it more difficult to generate adequate profits.

Federal Reserve Chairman Jerome Powell recently acknowledged that rising inflation is not a transitory problem as initially believed — and investors are worried, according to RealtyTrac.

In a press session just over a week ago, Powell declared that the U.S. economy is both healthy enough and in need of tighter monetary policy. With inflation running at a roughly 40-year high, the Chairman declared the surge transitory, and expects the Fed to raise rates three or four times this year in quarter percentage-point increments.

“If we see inflation persisting at high levels longer than expected, then if we have to raise interest more over time, we will,” Powell said. “We will use our tools to get inflation back.”

An increase in foreclosure activity could provide more affordable inventory for investors, offsetting some of inflation’s rising costs. A recent ATTOM report shows that foreclosures ended 2021 at historically low levels, but nearly 43% of investors think that foreclosure activity will rise to higher than normal rates, but stay below the level seen during the Great Recession.

However, Logan Mohtashami, HousingWire‘s Lead Analyst noted weakness in inventory demand will be the market’s saving grace. Inventory between 1.52 million and 1.93 million, while historically still low, will mean the days on market will go higher, giving people choices.

“For now, keep an eye out on the 10-year yield and 1.94%, we haven’t been able to break this level in a long time and today it doesn’t look like that will happen either. Remember, higher yields don’t crash a market, but they do cool things down, and with our inventory crisis in 2022, this is what we need,” Mohtashami said.

Looking into the future, 43% of RealtyTrac’s survey respondents believe that during the next six months, their outlook for the real estate investment market is about the same as it is today.

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