The New Year is a time of reflection and contemplation. For those of us who are in the real estate industry, it’s also an ideal time to look back over the previous year, to see what we can learn and apply to the new one.
“Is now a good time to invest? Should we be looking to buy in urban areas? Is there an impending housing crisis on the horizon?”
These questions –and so many more are at the forefront of many investors’ minds. How can we know where we should be investing when there are so many different narratives –that change by the second or depending on where you look?
To help shine some light on the state of housing in 2020, we thought it’d be a good idea to take a look at important developments that took place during this last year.
From housing prices continuing their march upward, to a shortage of affordable housing, to new developments in tech that’s making it easier for people to invest –there’s a lot that’s happening in the housing market, and some exciting times ahead.
With this in mind, here’s a look at some developments that took place during 2019. Read on to see what you should know for 2020.
Housing Prices Are on the Rise
Despite fears of an impending recession, 2019 still saw housing prices increase in many markets. Sure, there’s been reports of “housing prices dropping,” but it’s important to note that nationally, housing prices have not dropped –only their rate of increase slowed. That’s an important distinction and one that’s worth bearing in mind when you hear that the housing market’s cooling.
It’s also worth noting that some level of correction in housing prices is normal, and to be expected. After all, home prices are outpacing wage growth in 80% of markets –which means that a slower rate of increase could prove instrumental in helping first-time buyers to get on the housing ladder.
What can we expect housing prices to look like in 2020? That depends on your market. Nationally though, Realtor is projecting that housing prices will increase 0.8% in 2020, while CoreLogic has them on track to grow 5.4%.
For investors, it’s important to pay close attention to localized housing data.
“Local home-price growth can deviate widely from the change in our U.S. index,” says Dr. Frank Nothaft, chief economist at CoreLogic. “While we saw prices up 3.5% nationally last year, home prices also declined in 22 metropolitan areas. Price softness occurred in some high-cost urban areas and in metros with weak employment growth during the past year.”
It’s also a good idea for investors to exercise caution in 2020 when it comes to many major metropolitan areas –including Chicago, Dallas, Las Vegas, Miami, and San Francisco. Housing in these areas is sky high, and experts expect to see some cooling or even a drop in home prices soon.
Millennials Are Buying Homes
While millennials have long been postponing homeownership, that trend appears to be changing. At the end of 2018, millennials represented the largest group of homebuyers –responsible for nearly 48% of all new mortgages. It appears that this group has officially entered their prime home-buying years, making this trend likely to continue into the next few years.
Investors Are Heading for “Hipsturbia”
With the rise of millennial homebuyers, there’s also been an increase in demand for homes –both to buy and rent, that are located just outside of major metro areas. This movement is breathing life into secondary markets, which are seeing growth as millennials spill out of cities, and into the suburban areas.
There’s also a demand for areas with a focus on live, work, and play. These areas, also known as “hipsturbia,” are increasing in popularity with the millennial crowd. Far from tract housing plunked down in the middle of nowhere, these homes are built around a community, so there’s plenty to see and do nearby. They’re also located near urban areas, so close to work. Investing in these areas could prove to be a smart long-term investment as these areas will likely continue to prove popular with millennial home-buyers –and renters.
According to property management software firm Buildium, many of these emerging markets are acquiring residents twice as fast as the national average, gaining jobs more than twice as quickly. They’re also seeing home values grow 50% faster as well, along with 20% faster rent growth.
Midsize Investors Purchasing SFRs
While single-family rentals (SFRs) have long been the realm of small scale investors, over the last year we’ve seen a significant increase in activity among midsize investors –investors who own between 11 and 100 rentals.
According to Daren Blomquist, senior vice president at ATTOM Data Solutions, “These smaller to mid-tier investors are benefiting from newfound efficiencies in acquisition, financing and property management that allow them to buy outside their backyard in areas with higher potential returns, and to leverage their money to buy more properties.”
Build-to-Rent Activity is Increasing
Build-to-rent has been happening for a while now, but it’s always been primarily for metropolitan areas –where apartments and multi-unit buildings have long been popular among investors. But today, we’re seeing an increase of build-to-rent in tertiary markets as well. According to Gary Beasley, CEO of Roofstock, traditional homebuilders and real estate investors have been increasingly active in this space, and there’s been an increase of activity in areas like Atlanta, Charlotte, and Phoenix.
Rents Continue to Increase
Rents are on the rise. And in most markets, rent growth is expected to remain strong. According to Harvard’s Joint Center for Housing Studies 2019, the Consumer Price Index indicates that overall rents increased at a 3.6% annual rate in early 2019, while rents for professionally managed apartments were up more than 3% in over half of the 150 metros that RealPage tracks.
There’s a Shortage of Affordable Housing
Currently, we’re seeing a shortage of entry-level homes in many markets across the country. Lower mortgage rates are helping to fuel demand for these houses, and there’s not enough housing stock to keep up with the demand.
This means that first-time buyers could struggle to find housing. Additionally, according to Robert Dietz, chief economist of the National Association of Home Builders, currently, only about 10% of new-build homes are priced below $200,000. Five years ago, it was one in five, and ten years ago –about 40% of new builds were priced under $200,000.
This could present a real opportunity for homebuilders –as many investors in the single-family rental space are in the market for new-build housing in this pricing bracket. Builders could presell many of these properties to investors, allowing them to recoup their costs even faster.
New Tools and Platforms Are Arriving on the Scene
The real estate industry is continuing to digitize –and we’ve seen the rise of a number of helpful tools. From the rise of digital mortgage applications –to tools that are helping to simplify property investing, there are a number of different options out there to help make short work of many once time-consuming activities. From investment calculators to rent collection tools, to research centers that provide access to market data –investing is becoming more user-friendly.
As you can see, there are a number of different developments that have taken place during 2019. Taken together, these factors give us a pretty good idea about what’s in store for 2020. Of course, while a lot is unknown –for example, what will happen to interest rates, housing prices, or buyer demand –it’s a good idea to carefully consider what’s happened last year as we move into the new one.
While there’s a lot of speculation surrounding what will happen in 2020, it’s important to remember the facts. For investors, the best option is to always focus on local housing data. It’s not always wise to follow the hype. Instead, weigh up the data and trends to find an emerging market –an area that’s up and coming; one that’s showing signs of strong growth. Check for factors such as job growth, increasing population, and a high absorption rate. Then run the numbers on the property in question, to see how it’s likely to perform from a cash flow perspective, as well as a long-term investment.
At Renters Warehouse, we focus on providing education and raising awareness about developments in the real estate space. Head over to our website to view available properties that are on the MLS. Or, visit our Research Center and see historical appreciation in markets across the country.
Photo by Jessica Bryant from Pexels
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