Retail real estate investors are tempering their optimism for the coming year as the war in Iran and persistent inflation drive up mortgage rate expectations.
According to second-quarter survey results released Wednesday by real estate data provider BiggerPockets, forward-looking investor sentiment dropped significantly from the first quarter, largely due to the Middle East conflict and its upward pressure on borrowing costs.
The company’s Pulse Index, which gauges expectations for residential real estate investing conditions over the next 12 months, fell considerably from 150 in the first quarter of 2026 to 112 in the second quarter.
Despite this heightened caution and downgraded expectations for rate relief, the majority of investors still plan to expand or optimize their holdings. According to the survey data, investors are looking to capitalize on improved deal flow and stronger negotiating leverage in what is becoming an increasingly strong buyer’s market. Overall, the Pulse Index remains tilted toward a positive investor sentiment — but only slightly.
At the start of the year, investors held high hopes for moderating mortgage rates, stronger inventory trends and a modest rebound in affordability. But following the outbreak of the war in Iran and a jump in the consumer price index — which rose from a 2.4% inflation reading in February to 3.3% in March — investor hopes for significant mortgage rate relief have fallen considerably. As of early April, mortgage rates have risen about 40 basis points since the conflict began.
In response to inflation, the prevailing prediction among investors is that 30-year fixed mortgage rates will hover between 6% and 6.49% over the next 12 months, a noticeable shift from last quarter’s majority expectation of 5.5% to 5.99%.
Further contributing to the cautious outlook are growing anxieties over how artificial intelligence could disrupt the labor market and potentially lower overall housing demand. While the labor market is currently showing resilience with a 4.3% unemployment rate, concerning hiring rates and lower quit rates suggest that both employers and employees are feeling nervous about the broader macroeconomic environment.
In navigating these headwinds, active investors are shifting their strategic focus. Last quarter, investors believed the biggest opportunity in 2026 would be declining mortgage rates. Now, they see better deal flow, falling prices and an enhanced ability to negotiate as the primary advantages of the current market.
Almost no surveyed investors are planning to reduce their current holdings. Instead, they are leaning into strategies like long-term rentals and owner-occupied approaches, including house hacking and live-in flips. Geographically, these investors have identified the Midwest and the Southeast as the most promising regional hot spots for favorable investing conditions over the next year.
