As humans, we have something of a penchant for wanting to predict the future. Or at least trying to. From the oracles of Greece to late night television shows guessing who will win an Emmy this year, we are enthralled by future possibilities. Even if we don’t buy into today’s pop culture fortune tellers, we still spend time thinking about our own future—especially when it comes to real estate investing.
And it’s important that we do spend the time looking ahead to analyze trends that may impact our real estate investment business potential. If the housing crash taught us one thing, it is that predicting too far into the future may not be realistic, but looking toward the year ahead is only sensible. In doing so, we can plan out an investment strategy to achieve the greatest potential returns. With that in mind, here are the top real estate investment trends that I can see playing out in 2019.
The Major Real Estate Investment Trends Shaping Up Nationwide
Let’s begin by analyzing the nationwide market as it stands currently. Naturally, we want to base our predictions on these cold, hard facts rather than a crystal ball. So, here’s a handful of market-shaping facts about how we’re ending 2017 that will continue to have influence moving forward this year:
Despite a recent four percent drop in inventory, there are slightly more homes on the market than a year ago.
The value of U.S. homes rose by 7.6% year-over-year, edging them even closer to pre-crisis peaks.
Rent prices are up an average of 1.4% compared to last year.
Additionally, the S&P CoreLogic Case-Shiller National Home Price Index reported a 5.5% year-on-year sales gain for September of last year, though home sales are down overall from the year prior. Also, the average household size has shrunk to lower than pre-recession rates, reducing the need for large single-family homes. As a result, smaller houses are trending now.
Putting this all together, it looks like investing in smaller, moderately-priced homes was the best bet and, whether you’re a buy-and-sell or a buy-and-hold investor, you likely achieved decent returns last year.
Real Estate Investing Predictions for 2019
Increasing rent and house prices across the country probably added equity to your 2018 real estate investments, but you may be wondering whether now is the right time to cash out on your properties should the market shift. Many investors will be bullish. It’s easy to look at tight available housing inventories and shrinking household sizes (caused, in part, by Millennials flying the nest) as signs that demand will increase even more in the new year. But does it get more complicated than that? Here are four real estate trends to watch for in 2019:
1) Inventory Gains Traction In Some Markets—But Not Enough
In most markets around the country, available inventory rose last year—but, only slightly and just enough to stall the decline. In the lower and middle price ranges, inventory remains tight enough that homeowners are hesitant to sell in case they can’t find another affordable home to buy. We can well imagine that the continued squeeze in these price ranges will exacerbate rising home prices—at least for the first part of the year. But, even as inventory is likely to continue rising in 2019, as Realtor.com expects it to, this loosening will mostly be seen in middle to upper price points first.
The good news is that you can still find existing properties to rehab and attract buyers while sales prices are on the rise. Ugly houses and distressed properties are excellent investments during periods of tight inventory. With the new federal tax bill in full effect, it’s not unreasonable to expect more homeowners in financial distress coming down the pipe who need to offload their home fast. This is the opportunity you’ve been waiting for.
Fixer-uppers for sale will provide a level of flexibility to investors in a way that few other property types can. As tight inventory forces more Millennials to continue renting while rent prices rise in cities like Orlando, a buy-and-hold strategy can reap rewards in the long run. At the same time, soaring sales prices mean that investors who want to get in and out can buy, renovate, then sell a distressed property and still turn a potentially healthy profit on the project this year.
2) Death of the Luxury Market
The luxury market was considered a safe haven following the Great Recession. After all, the brunt of the economic decline fell on the 99%; the one-percent still had enough liquidity to afford to purchase luxury apartments in the world’s most popular cities. That’s changing, however. Look to the New York skyline today and you may see more luxury apartments than a decade ago—but, many have been repurposed for temporary event space or are just sitting empty. Of those that did sell last year, most sold for significantly less than asking price. At the same time, the average time on the market for a luxury apartment rose to a whopping 441 days, according to reports, indicating that some of the steep price cuts weren’t steep enough.
As an investor, you aren’t going to find any value in luxury properties in 2019, which is just as well because if you’re like myself and many of my investor friends, you can’t afford them anyway. House prices tend to be higher in city centers—Manhattan and San Francisco, for example—whereas suburban areas will remain relatively more affordable. As home buyers are priced out of city-center markets, we will see a greater migration to the suburbs.
That’s why the suburbs are where you should be looking to find your next investment. Forget Manhattan, San Francisco, and Chicago Loop, instead look to the Bronx, Oakland, and Avondale in 2019. Single-family homes will dominate—and you shouldn’t find it hard to uncover several distressed diamonds in the rough as long as you have the right lead generation strategy.
3) Rise in Mortgage Rates
A confluence of factors ignited a rise in mortgage rates last year and they are expected to continue their upward trajectory through 2019, fueling worry for some homeowners. By year-end, according to Realtor.com, the average rate for a new 30 year fixed mortgage will reach 5.5%. And, homeowners with existing adjustable-rate mortgages or home equity lines of credit can expect their rates, and payments, to go up, too. The Federal Reserve is credited, in part, for the rise—the Fed raised interest rates four times in 2018—but, shifting national and global economic trends share in some of the responsibility. Of course, some say that the climb in mortgage rates is part of a market correction that’s simply long overdue and that no meaningful long-term impact should be expected—or, balked at. But, even a fraction of a mortgage rate percentage point can make or break some buyers’ ability to purchase a home. It can certainly price current homeowners out of meeting their monthly loan payments on time.
If you can locate and market to these distressed homeowners and others like them facing similar financial strains, it’s possible to acquire some pretty good deals while also helping to prevent their bad situations from getting worse. And, in markets where capitalization rates are strong, turning your newly purchased single-family residence into a rental can boost the strength of your property portfolio while simultaneously increasing the housing options for those who can’t buy in 2019. There are a number of ways to provide “solutions for ugly situations®” and make a potentially big buck as an investor. Buying houses to rehab from motivated sellers is one of them.
4) The Dominance of Millennials Continues
Millennials already comprise the largest segment of home buyers and will remain the dominant force in both sales and rental markets in 2019. The National Association of Realtors reports that Millennials made up 36% of the total number of people who took out a mortgage last year and that 65% of those buyers were first-time homeowners. And, they are expected to continue dominating their fair share of purchases in 2019 despite the upward shift in mortgage rates and rising student debt. But, since popular markets like New York City and San Francisco persist in remaining out of reach for many buyers, including Millennials, and corporate employers such as Amazon, Facebook, and Google further their expansions into new regions, opportunities for this generation to move throughout the country will only increase. Of the 10 cities that Trulia has pegged to experience serious growth in the year ahead, most are in the southeast, southwest, and midwest. As we move into 2019 then, Millennials won’t just continue to command the housing markets in technology hubs, they will become more evenly spread across the country.
Whether your strategy is to rent or sell, Millennials should become your target market. If you fail to target Millennials, you may fail to sell or rent out your property. There are some things that you can’t change—property location or internet signal, for example. But there is a lot you can do to attract Millennials to your investment property. Making the property pet-friendly is a big start. If you weren’t already aware, Millennials love their pets—so much so that they make up the largest number of pet owners in the U.S. Making renovations with a focus on pleasing their furry friends will be a significant factor when it comes to gaining the attention of the growing Millennial market segment.
Finding Leads with HomeVestors®
Are you set up to take advantage of these trends in 2019? I know I am. But that’s because I’ve got the backing of HomeVestors. As an independently owned and operated HomeVestors® franchisee, I can draw on the proven training, tools, marketing and experience offered by HomeVestors to significantly grow my business in the year ahead. Because of the nationally-recognized “We Buy Ugly Houses®” marketing campaigns, distressed homeowners in my area will come directly to me when they want to sell. I can then buy and renovate these rundown properties then sell to the biggest group of homebuyers—Millennials.
If you are looking to grow your real estate investing business in 2019, talk to HomeVestors today.
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