US real estate investors likely to find financing challenging

The US real estate market remains a focus for many investors but financing any potential purchases may be a barrier currently.

A recent survey of real estate investors revealed strong sentiment for the residential sector, with 68% of respondents saying the market was better in the third quarter of 2024 than it was a year earlier while just 13% felt it had worsened.

The RCN Capital poll also found that 71% of investors expect the housing market to continue to improve versus just 9% who think it will decline.

However, even with the Fed’s recent 50-point cut in interest rates, the cost of borrowing remains elevated and may be a step too far for many investors. Almost two thirds cited financing costs as a challenge to investing in homes and more than half think it will still be a challenge in six months, although this has dropped 10 percentage points from the second quarter.

Other costs are also challenging, including insurance, while lack of inventory, competition from other investors and homebuyers, and rising home prices are all among the most cited challenges.

CRE OUTLOOK

If the residential real estate market is a little too hot for investors to handle right now, perhaps the US commercial sector is worth a look?

Unfortunately, there are financing concerns here too, with availability as well as cost posing challenges for investors.

A report from Altus Group shows that CRE investors polled in the third quarter are expecting financing costs to decrease, but while availability of financing is expected to increase over the next year, bank lenders and mortgage REITS may continue to take a cautious approach.

On a positive note, overpricing of properties is showing signs of easing with greater availability of more fairly priced properties across major segments. Respondents to the Q3 survey said that single-family residential and land/development were overpriced but hospitality and multifamily saw significant swings to fairly priced compared to the overpriced tag of the previous quarter.

Earlier this year a report highlighted the potential risks for real estate investors, with 90% stating that they have lost money on their investments and 52% revealing that they have lost at least $100,000 on a single investment while 42% lost at least $200,000.