With January well underway, many are wondering whether this will be the year when you finally get to turn your investment property into a thriving business. But with so much market fluctuation and political uncertainty, it can be hard to tell exactly what’s in store for property trends in the months ahead.
Alex Pettee
Throughout last year, historically low mortgage rates and a strong job market have pushed more people to consider buying everything from first-time homes to a vacation or investment property. Many small-time investors have been hoping to tap into growing property values by trying their hand at bringing in tenants. That said, this highly competitive housing market is also causing some affordability problems – both first-time buyers and would-be investors are struggling to find the property they want and holding off on buying as a result.
“The housing markets perform their best when the US economy is in the ‘Goldilocks’ zone where economic growth is hot enough to power continued job growth and rising household formations, but not so hot that it leads to higher inflation and interest rates, which would push mortgage rates higher,” Alex Pettee, a chartered financial analyst and president of real estate investment firm Hoya Capital, told Inman.
Here are some of the trends that those who own investment properties can expect to see in 2020:
Homebuilders could save us all:
Throughout 2019, lack of available inventory continued to plague the market — even as mortgage rates stayed low and the economy flourished, the low supply of available homes in popular cities has hiked up housing values and prevented many first-time buyers from breaking into the market. According to Orange Line Living brokerage founder Daniel Lesniak, many are holding out hope that homebuilders will be the one to carry the economy. After years of underbuilding, experts predict a drastic jump in starts as more and more prospective homebuyers turn to building and buying new homes.
“There was a long period in which new starts weren’t keeping up with the demand,” Lesniak told Inman. “Now we’re seeing a bit of catch-up. We’re seeing more projects being acquired by builders.”
Dan Lesniak
Millennials taking the lead:
Once derided as the generation of avocado toast and renting into your forties, millennials are starting to enter the housing market with force. Pettee said that, as those born between 1989 and 1993 enter their thirties, more and more will be starting families and looking for homes — and, among the older end of the cohort, starting to invest. Citing Harvard University’s Joint Center for Housing Studies (JCHS), he said that the number of households formed by people in their mid-30s to mid-40s will increase by 2.9 million over the next 10 years.
“The entry-level is really where the incremental marginal demand will come from over the next decade ahead of the forthcoming millennial housing boom, as the largest generation in American history comes full-force into the single-family markets,” said Pettee.
Shifting regulations:
Stringent housing laws have, throughout the 2010s, sometimes held back market growth. Cities are, according to Lesniak, addressing the current inventory and affordability problems by implementing a number of different measures — anything from rent control in California to zoning changes in New York and new federal regulations for large developments. While investors in different parts of the country (and dabbling in different branches of the industry) are hoping for different things, almost all want to see shifting regulations open up new opportunities and expand the type of housing that can be built.
“I’ve seen cities [consider] new zoning and which types of housing they will allow,” said Lesniak, adding that in his hometown of Arlington the city is considering allowing duplexes and quad units. “[…] I think that both industry and local government officials are aware of the challenges and reacting to it.”
Ingo Winzer
More unexpected markets:
In others words, think beyond San Francisco and Seattle. Cities like Orlando, Phoenix, Charlotte, Charleston, and almost anywhere in Texas are all projected to see dramatic spikes in home values as more people move there in search of jobs and good places to raise families. While it can be hard to predict just what market will explode in the years to come (how many times have you heard an investment company tell you that their city is “the next Seattle”), it can help to look at a variety of factors — population growth, job markets and rental rates are all important pieces of the puzzle. Some investors are also holding out hope that small markets that crashed in the 2008 housing crash will begin to pick up in 2020.
“You can’t just invest blindly in these places — some still have high unemployment, some have just one big employer (maybe a military base) whose fortunes you must weigh – but in most cases your economic risk is small even if very little growth is taking place,” Ingo Wizer, president of Local Market Monitor, wrote for Forbes.
Don’t forget the tech:
If the last decade in real estate taught you anything, it should be to avoid technology at your own peril — we’ve all seen how quickly homebuyers have come to expect faster processing times and more digitally-forward mortgage and title applications. The newest trend is for companies to pull longterm real estate data (everything from rent prices to the demographics of a certain neighborhood) to make decisions about what and where to build. Many an investor is hoping that better access to data will help bring down the risks of a bad investment and help maximize any potential profit.
“Housing is one of the last remaining industries to see significant technological disruption, but we think that the effects are coming and they will be significant,” said Pettee. “The streamlining of the homebuying transaction process, when it comes, will have positive ripple effects throughout the entire housing industry ecosystem, from home improvement to home financing, to new home construction.”