This week veteran real estate investor and property manager Larry Arth discuss what he sees as 7 real estate investing trends For 2017.
I have held many discussions with investors, builders, buyers and sellers heading into 2017, and their consensus, as well as everything I have read, leads me to this conclusion:
Real estate investing over the next three years will bring slow and steady increases similar to what we saw in 2016.
Now you may be thinking we are navigating unchartered territories with all the changes happening in the political scene. You may see a mixed bag of information making it difficult to assess your investment strategy.
Many are asking, “Why do so many people have such a different perspective on what the market for real estate will look like?”
The reason is because real estate is a broad topic and no one answer can cover such a broad question. Just as a national weather forecast is not much help in your neighborhood, you also cannot give a national real estate investing forecast. That is why you are seeing such a broad array of ideas as to what the investing landscape will look like.
So let’s remove some of the cloud of mystery here and look at 7 trends real estate investors should watch this year. There is a way to invest in real estate and safeguard your investment dollar to ensure you are investing in a safe and sustainable investment if you watch these 7 things.
No. 1 – Housing and technology
More than 60 percent of the population believes that home ownership will continue to improve over the coming years. One thing to watch is the massive amount of technology being incorporated into the housing industry. Millennials and technology needs go together. So this needs to be watched as the Millennial population is the h2est segment of our tenants and potential tenants based on sheer volume.
This request for technology running our homes will continue to be a dominant force in housing. Perhaps this will be something we, as investors, will want to keep a close eye on. We need to keep up with technology in our rentals to compete with this desire for technology by not just the Millennials but now older, affluent Baby Boomers who also expect certain technology advances in their rentals. Plus if your exit strategy is to sell to the retail buyer sometime in the future this will be a required asset.
No. 2 – Rising interest rates and housing
Perhaps the rising interest rates will not affect the housing market. It depends on what causes the rates to rise.
A large number of people are concerned about rising interest rates because we have become accustomed to the three and four percent rates we have enjoyed over the past decade.
The flip side however is that the economy and job growth, as well as wages, have been stagnant for the past decade as well. In order to keep the economy moving forward the rates needed to be low.
If jobs start to increase again and salaries go up, then the natural progression of affordability of housing will also be maintained. Buying a home tends to be less tied to the interest rates and more tied to the consumer’s feeling of wellbeing. If consumer household incomes continue increasing, the affordability will maintain its strength through interest rate increases.
No. 3 – There are not enough homes for the entry-level buyer
What may hurt the housing market in the near future, especially for entry level buyers is not the interest rates but instead the lack of available properties within the price points favored to the entry level buyer.
This lack of inventory will keep an upward pressure on the housing prices under the simple rules of supply and demand.
It is these types of homes that have been snatched up by investors over the past several years.
As these single-family homes are being made available to renters now instead of home buyers, I believe investor landlords will be well-positioned for good, sustainable returns in the coming years with this rental class.
No. 4 – The issues of new regulation, shortage of labor and buildable lots
There is a high demand for housing and there is low supply. Home builders are obviously happy and content. So why are they not building more at a faster pace?
New regulations have been costly and time consuming. Labor shortage has been a big factor and shortage of buildable lots has been a large factor.
The inability to build faster has kept overall housing supply short. That means prices will continue to rise and may do so until the balance of supply and demand are in check.
Builders are ok with this as they need to keep prices up to offset their increasing building expenses. All this of course points to sustained growth in value, as long as jobs continue and incomes are sustained to keep housing affordable.
No. 5 – What will the author of the Art of the Deal bring?
What will housing under a Donald Trump presidency look like? There are many thoughts about how Trump will impact housing. Some fear he will cut many government programs and that may lead to a recession. We do know that Trump understands the housing sector is one of the country’s h2est economic engines.
He tapped Dr. Ben Carson to be the head of the U.S. Department of Housing and Urban Development. Both Trump and Carson believe in fewer regulatory restrictions, which should help in keeping rates low and more housing available to more people. Overall many see a Trump presidency as being good for the housing sector.
No. 6 – Location remains king
Many markets are strengthening. This is the time buyer's markets balance and balanced markets turn to seller’s markets in real estate investing. Now more than ever you want to keep your eye on your market demographics and fundamentals.
When markets that you currently own reach seller-market status, you may opt to reposition for the next best markets. This is perhaps the best strategy for maintaining a h2 portfolio. We are definitely at the point of keeping a close eye on the best and transitioning markets.
Markets always rise and fall. They always have and they always will. Real estate is the same exact way. Locations will rise in value and fall in value. Cash flow will rise in availability and will fall as well.
There fortunately is a way to invest in real estate and safeguard your investment dollar to ensure you are investing in a safe and sustainable investment in the right location.
The solution of course is making sure you are investing in affordable markets. This is not to be confused with what you can afford as an investor, but instead the industry standards. You simply want to identify the cities in affordable markets. And, markets running below the national average for affordability are even safer bets.
Additional Resource 3 Ways To Know If Your Market Is An Affordable Market
In the simplest terms, median income times three should be the median home price. The city you invest in should fit within this rule to be a sustainable investment.
The flip side is, if you can purchase a median priced home for less than three times annual income you may have found an undervalued market which creates a longer sustainable time frame for your investments. Remember the fundamentals of real estate markets and the key things to look for in your real estate investing:
- Population growth
- Job growth
- Job diversity
- Cities 5 and 10 year vision plans
So location is king. See the big picture, but keep it simple and you will find investing more fun and much more lucrative. Following these simple principles will allow you to make great investments even when you are not sure what the political landscape is looking like because location is king.
No. 7 – The housing market will normalize in 2017 and beyond
Based on everything we are seeing and all the surveys being conducted, I believe 2107 will bring a more normalized housing market.
It is one that still boasts a healthy number of sales, but a moderate rate of price growth. Prices will have a more normal pace of increase and low supply will keep it sustainable. Those who cannot buy will continue to rent and the entry-level houses that are in short demand will be winners for the landlords who own and rent them.
Landlords, now more than ever, will want to keep a handle on the latest trends in real estate so they can adjust to meet the wants and needs of their tenants.
Optimism is h2 for real estate investing
The optimism looking forward continues to be h2. In fact, a recent survey conducted by John Burns Real Estate Consulting shows 34% of respondents have an increase in optimism for the next 3 years versus a year ago.
Happy Investing!
