Real Estate Investing

Housing Market Outlook for 2024: Challenges and Opportunities

Welcome to our comprehensive update on everything you need to know about the real estate market in 2024. Let’s dive right in!

The first thing I want to mention is that when we’re talking about “The” housing market we’re usually referring to the national market. There are 3,143 counties and 387 Metropolitan Statistical Areas or MSAs in the US. An MSA is a geographic entity based on a county or a group of counties. It must have at least one urbanized area with a population of at least 50,000. Adjacent counties must have economic ties to the central area.

So while it’s convenient to look at the nation as a whole, you need to know what’s going on in in your area of interest. You want to look at economic factors as well as things like migration and job growth. You go top down starting with the market then drill down to the neighborhood and specific property.

And, of course, all this depends on your strategy. You can and should have different strategies for different markets. You might do flips here in Denver but own rentals in Ohio, and invest in a multifamily syndication in Dallas, for example. I also want to point out that there are no certainties when it comes to predicting what the market will do, only probabilities. Let’s look at the contributing factors.

Supply and Demand Dynamics

One of the fundamental drivers of the housing market is the interplay between supply and demand. The availability of housing inventory and the willingness of buyers to make purchases are crucial factors. They influence property prices and market activity. Supply high and demand low means prices go down. Supply low and demand high, prices go up.

Many regions have experienced a shortage in housing supply, which has been a significant driver of price increases in recent years. In 2024, if construction activity picks up to address this imbalance, we might see a more stable increase in housing prices, rather than the sharp spikes observed in previous years.

Interest Rates and Inflation

The FED has raised interest rates 11 times since March 2022 and the single-family housing market hasn’t crashed. This shows us how resilient the housing market is. The cost of borrowing affects a buyer’s ability to purchase a home. So, it affects the demand for housing. Higher interest rates for an extended period will dampen demand as well as the supply of homes coming to the market due to the ‘lock-in’ effect.

Inflation can have a dual effect. It can erode the real value of mortgage debt over time, which is beneficial for existing homeowners. But it also increases the cost of construction and home maintenance, pushing up new home prices.

In 2024, these dynamics are particularly complex due to the global economic landscape. Post-pandemic recovery patterns and geopolitical tensions influence the housing market, resulting in volatility. Because it’s an election year, we might see a small rate drop. But if inflation persists, we could see interest rates go up.

Chronic Unaffordability

In addition to macroeconomic factors, the housing market has long struggled with chronic unaffordability. This issue is not new and has persisted for some time. To put it into perspective other countries like Canada, Switzerland, and New Zealand have seen home prices surge relative to per capita income.

Addressing this affordability crisis is essential for a sustainable housing market. Instead of resorting to demand destruction, focusing on increasing housing supply is a more effective solution. Stimulating supply growth can help alleviate affordability concerns and create a healthier market.

Despite potential increases in supply, affordability will remain a key issue, particularly in major urban centers. Rising costs of living and potential stagnation in wage growth could limit the ability of new buyers to enter the market.

Housing Supply Challenges

One of the primary challenges in increasing housing supply is the availability of land and resources for construction. Profit margins for home builders have played a crucial role in maintaining the momentum of single-family permits and construction activity. These profit margins have allowed builders to keep building, helping meet the demand for new homes.

However, the pace of supply growth has not been sufficient to keep up with demand. Increased rates and labor shortages make it hard for builders to justify building more. Bank finance hesitations on larger projects and supply cost issues are also contributing. Many of them have been taking a haircut in 2023. Builders needed to give 6-10 points in buyer concessions to pay down interest rates, to sell the houses they had in their inventory.

Economic Outlook

The economic growth in 2024 will be limited. Fiscal policy will contract further. Savings rates will stop falling. Bank lending and the money supply will continue to contract. Households and businesses have shown they are not sensitive to interest rate changes. This is true even when rates are high. This means the expected rate cuts may not stimulate the economy as much as hoped.

The 10-year yield is a significant indicator that influences housing market dynamics. When the 10-year yield rises, it weakens housing demand. Conversely, when it falls, it strengthens demand. Therefore, keeping a close eye on the 10-year yield is crucial for predicting market shifts.

Opportunities

Increased awareness and regulations around environmental sustainability will play a more significant role in the housing market. Properties with green features or those located in areas less prone to climate-related risks might see higher demand.

The persistent demand for housing, driven by population growth and urbanization, presents a significant opportunity for builders. Meeting this demand through innovative construction methods, materials, and sustainable practices can address housing shortages. It can also contribute to a more environmentally friendly housing sector.

Affordable housing initiatives and government incentives can create opportunities for investors to participate in projects that align with social and economic goals. By focusing on affordable housing solutions, developers and investors can positively contribute to their communities. They can also tap into government support and incentives. This facilitates housing projects for low and middle-income individuals and families.

For investors, the focus might shift towards emerging markets or secondary cities where the growth potential is higher. Additionally, there could be increased interest in alternative housing investments, like multifamily, mobile home parks, or properties in areas with high rental demand. By recognizing these opportunities and staying adaptable, the housing market in 2024 has the potential for both growth and positive societal impact.

Looking Forward

To navigate the challenges and opportunities in the housing market for 2024, it is essential to remain informed and look ahead. The housing market is influenced by a multitude of factors, from supply and demand dynamics to interest rates and inflation. Understanding the interplay between these elements is crucial for making informed decisions in the real estate sector.

While challenges like chronic unaffordability and supply constraints persist, there are opportunities for growth and sustainability. Focusing on increasing housing supply can help industry stakeholders navigate the complexities of the housing market in the coming year. Staying vigilant about economic indicators can also help. Real estate professionals can adapt to changing market conditions and make the most of the opportunities that lie ahead by staying informed and proactive.

Despite rate hikes and uncertainty in most markets, supply and demand continue to dictate that many single-family home markets will continue to rise in value in 2024. But not in all markets. So do your research. Whether they continue to rise depends on how messed up the banks get. 1.2 Trillion dollars of commercial debt is coming due, along with our inverted yield curve. Either way, 2024 is safe for now, but that’s just my educated guess.

Real Estate Is The Ideal Investment

Real estate is often touted as the IDEAL investment, and for good reasons. This acronym—IDEAL—summarizes the core benefits of real estate investment: Income, Depreciation, Equity, Appreciation, and Leverage. Let’s explore each of these aspects to understand why real estate stands out as a powerful investment strategy.

Income

The most immediate benefit of real estate investment is income. Properties, especially those in high-demand areas, can generate significant rental income. This steady cash flow is a compelling draw for investors, providing a continuous source of revenue. Unlike stocks or bonds, which might pay dividends or interest periodically, rental income from real estate can be a reliable monthly income.

Depreciation

Depreciation is a tax advantage unique to real estate investment. It allows investors to deduct the costs of buying and improving a property over its useful life, typically 27.5 years for residential property. This deduction can offset taxable income and reduce the overall tax burden. It’s a benefit not found in other investment vehicles, making real estate particularly attractive from a tax perspective.

Equity

Building equity is another critical component of real estate investment. As mortgage payments are made, the portion of the payment that goes towards the principal increases the investor’s equity in the property. Over time, this equity can become a significant financial resource. Additionally, equity can be leveraged for further real estate purchases, amplifying the investment potential.

Appreciation

Real estate typically appreciates over time. While markets fluctuate, the general trend for real estate has historically been upward. This appreciation means that properties are likely to be worth more in the future, providing a potentially lucrative return when sold. Furthermore, appreciation can also increase rental income over time, enhancing the property’s profitability.

Leverage

Leverage is a powerful tool in real estate investment. It allows investors to purchase properties with a relatively small amount of their own money, borrowing the rest. This can significantly increase the return on investment, as the gains from appreciation apply to the property’s full value, not just the amount initially invested. Leverage can multiply investment power but also comes with increased risk.

Real estate’s IDEAL characteristics—Income, Depreciation, Equity, Appreciation, and Leverage—make it a unique and potent investment opportunity. It offers a blend of immediate income, tax advantages, growth in equity, potential for appreciation, and the power of leverage. However, like any investment, it’s not without risks and requires careful consideration, market research, and sometimes, patience. With the right approach, real estate can indeed be an ideal investment choice for many.

Here’s how you can Double Your Rental Income

The Truth About Institutional Investors In The Housing Market

Summary

Institutional investors, medium-sized investors, and large investors collectively own only 3.4% of all homes in America, debunking the notion that they own a significant portion.
Institutional investors are looking to acquire medium and large-sized property portfolios, not taking owner-occupied properties out of the market.
Institutional investor impact varies by location, with certain cities experiencing more concentration of ownership.

In recent times, there has been much discussion and concern about the role of institutional investors in the housing market. Some have raised alarm bells, suggesting that these investors are poised to take over the housing market, displacing individual homeowners and causing a seismic shift in the landscape of real estate.

We have misinformed people saying that institutional investors own 30 to 40% of single-family homes and that number is going to go up to 60%. They’re saying the reason that they can’t buy a house is because all these big Wall Street firms have bought all the houses out from underneath them.

A prominent presidential candidate is saying that institutional investors in a couple of years are going to own 60% of all the homes in America. And now we have a bill saying that institutional investors are going to be not allowed to own a home and they’re gonna have to sell off their current inventory in the next 10 years.

But is this really the case? Let’s dig into the facts and separate myth from reality.

Types of Investors

First off, you need to understand what an Institutional Investor is. Often, people use the term “investor” broadly, but in reality, there are four basic categories, each with its scale and approach to investment.

Mom-and-Pop Investors: These are individuals or small-scale investors. Think of your neighbor who bought the house next door or a person who owns a few properties as a side business. These investors typically own a small number of properties, maybe two or three, and their involvement in real estate is often part-time or supplementary to their main income.

Medium-Sized Investors: This group steps up from the mom-and-pop level. They own a more substantial number of properties, usually ranging from 10 to 99 homes. Their investment in real estate is more significant, and often, this group treats real estate investment as a major source of income or a primary business.

Large Investors: These are serious players in the real estate market. They own between 100 and 999 homes. Their involvement in real estate is extensive, and their operations are often well-structured and professionally managed.

Institutional Investors: At the top of the scale are institutional investors. By definition, these entities own 1,000 or more homes. This category typically includes large corporations, investment funds, and other institutional entities. Their scale of operation is vast, and they often have a significant impact on the real estate market.

In discussions about real estate investment, it’s important to clarify which category of investors is being referred to. Sometimes, medium, large, and institutional investors are collectively referred to as “institutional investors” for the sake of simplicity or to focus on those who own a large number of properties. However, this broader use of the term can sometimes lead to confusion or misinterpretation of data and trends in the real estate market.

Institutional Investors Own Less Than 1% of All Homes

Contrary to widespread beliefs, institutional investors, defined as those owning over 1,000 homes, account for just over 0.5% of U.S. home ownership. When this figure is combined with that of medium and large investors, the total still amounts to only about 3.4%. These statistics challenge the narrative of institutional investors holding a dominating presence in the housing market, a misconception that needs addressing.

Where did this misinformation come from?

One source of confusion comes from a study by MetLife, which some have interpreted as suggesting that institutional investors will own 40% of all homes in the country by 2030.

However, the study indicates that institutional investors may own 40% of rental homes by that time, not 40% of all homes. This clarification is crucial because it changes the narrative significantly.

Another Article in Medium written by “Hopeless Romantic” misrepresents that Institutional investors bought 44% of all single-family homes in 2023. The article was talking about the first three months of the year.

The article linked to two different articles neither of which say anything about 44%. These private equity firms did not buy 44% of all homes in 2023, but rather, they purchased only 3% of homes in the first part of 2023.

Focus on Rental Homes, Not Owner-Occupied Properties

Institutional investors are not looking to gobble up owner-occupied properties. Instead, their interest lies in acquiring portfolios of medium and large-sized rental properties. In essence, they are not taking homes away from the market but rather changing ownership within the rental sector. This is a common practice in many industries, and it doesn’t necessarily mean fewer opportunities for individual homeownership.

Separating Fact from Politics

Let’s look at the responses from two respected figures in the real estate industry. Lance Lambert and John Burns highlighted the inaccuracies. Lambert, formerly with Fortune Magazine, pointed out that institutional operators, who own at least a thousand homes, only account for a small fraction of the single-family home market. Burns, a consultant in new construction, expressed concerns about how misinformation influences public opinion and legislation.

The debate around institutional investors in real estate has taken on political undertones, with both sides using the issue to gain support. However, it’s essential to remember that this isn’t purely a political matter. The impact of institutional investors varies greatly by location, and the overall scale of their ownership is smaller than sensationalized reports suggest.

Institutional investor impact is not uniform across the country. Some cities, such as Atlanta, Dallas, Houston, Phoenix, Charlotte, and Tampa, see a more significant concentration of institutional ownership. In contrast, other parts of the country have minimal or no institutional investor presence.

As an investor-friendly real estate agent, I see my role as helping clients navigate the housing market. Instead of parroting unresearched claims, I pride myself on being a well-informed source of information. I believe that providing clients with accurate data combined with an understanding of the market allows them to make informed decisions.

The role of institutional investors in the housing market is more nuanced than often portrayed. While they are becoming significant players in the rental sector, they are not poised to take over all homes in the country. The housing market faces more pressing challenges, such as shortages, that require attention. Agents should stay informed and provide balanced perspectives to their clients, helping them make the best decisions for their unique situations.

Double Your Rental Income with Hybrid Real Estate Investing: A Game-Changing Strategy

Are your rental properties struggling to generate positive cash flow due to the rising cost of homes and stagnant rental rates? You’re not alone. I’m going to introduce you to a game-changing strategy that can help you double your rental income and create a win-win-win situation for both you and your tenants.

Understanding the Challenge

In today’s real estate market, prices of homes have surged, but rental rates haven’t kept pace. Additionally, many people are dealing with increased mortgage rates, making it challenging to achieve positive cash flow from rental properties. If you’re facing these issues, it’s essential to find a solution that can boost your rental income and keep your real estate investments profitable.

The Secret: Hybrid Real Estate A.K.A. Lease Options

The key to overcoming these challenges lies in understanding and implementing lease options or rent-to-own strategies. These strategies are a specific form of seller financing that enables you to buy and sell real estate without the need for realtors or traditional banks. By offering lease options to potential tenants, you can double your rental income and create a more profitable real estate portfolio.

The Benefits of Lease Options

Here are some key takeaways on why lease options can be a game-changer for real estate investors:

Win-Win-Win: Lease options create a win-win-win scenario. You win as an investor, your tenants win by having the opportunity to become homeowners, and the community wins by increasing homeownership rates and stability.

Three Profit Centers: Lease options offer three major profit centers:

Upfront Payment: Tenants pay an upfront option fee that can range from a few thousand to tens of thousands of dollars.
Monthly Positive Cash Flow: Monthly rent payments in lease options can be significantly higher than traditional rentals, resulting in increased monthly cash flow. Tenants are also responsible for maintenance and repairs under $500.
Potential Profit on Sale: When the tenant eventually purchases the property, you can make substantial profits. There are no realtor fees, and the selling price can be higher than the property’s initial value.

Low Risk, High Reward: Lease options are low-risk investments compared to traditional rentals. You don’t have to deal with property management, and repairs are typically the responsibility of the tenant. This reduces your expenses and increases your potential for profitability.

The Social Impact

Beyond financial benefits, lease options offer a social advantage. They provide a path to homeownership for families who might not initially qualify for traditional mortgages, thus serving the community by promoting homeownership.

Real-World Example

Let’s break down a real-world example to see how lease options can significantly increase your rental income compared to traditional renting:

Scenario: You own a property worth $450,000 with a monthly mortgage payment of $2,500.
Traditional Rental: You rent it for $3,100 a month, resulting in a meager $200 monthly positive cash flow after accounting for property management fees, maintenance, and repairs.
Lease Option: You rent it for $3,200 a month, and enjoy a substantial $500 monthly positive cash flow because you do not have to pay for property management or minor maintenance and repairs.

The bottom line? Lease options can potentially double your rental income or more, providing you with immediate positive cash flow, saving on expenses, and increasing your overall profitability.

How to Get Started

Hybrid REI offers a unique and effective way to double your rental income, even in challenging real estate markets. By understanding the benefits of this strategy and implementing it wisely, you can create a more profitable and sustainable real estate portfolio. Don’t miss out on the opportunity to maximize your rental income and provide valuable housing solutions to your tenants.

At Hybrid Real Estate Investing, we facilitate turnkey lease options. Click here to see if we have any available opportunities or get notified when we do by clicking here.

How to Choose an Investor-Friendly Agent

The following was from a Q&A Panel Discussion that I was invited to sit on at our local Cash Flow Breakfast Club. I hope it helps both investors and agents understand how to find and create amazing relationships that will last for many years! – James A Brown

What does creating agent-investor synergy mean to you and what does it look like?

I believe synergy is essential for maximizing opportunities and achieving shared goals in real estate transactions. It’s a collaborative, trust-based relationship where both parties understand and respect each other’s goals and expertise.

This synergy is characterized by effective communication, a mutual commitment to shared success, and an ongoing partnership rather than a purely transactional interaction. It requires agents to offer valuable market insights and investors to be clear about their objectives and financial capabilities, all while adapting to changing market conditions and learning from each other.

The ultimate aim is to maximize opportunities and achieve mutual success in real estate investments.

Why do you focus on solving problems -vs- just getting a good deal and how does creative financing factor into doing that?

When you focus on solving problems, you build trust and increase your chances of getting the deal. Creative financing can solve a variety of seller and buyer problems. As an investor-agent, my approach prioritizes problem-solving over merely securing good deals.

Creative financing is an integral component of this problem-solving approach. It offers flexibility and opportunities beyond traditional financing methods, crucial for closing deals aligned with an investor’s financial situation and investment strategy.

This approach is essential for ensuring the long-term value and profitability of investments. By educating myself on creative financing strategies, I help sellers get what they need and investors get profitable property.

This focus also means aligning property choices with each investor’s unique goals and risk tolerance, ensuring a tailored investment strategy. Additionally, understanding and navigating market challenges is a key part of my role, which involves staying agile and adapting strategies in response to market fluctuations, thus maximizing investment value.

This flexibility not only makes certain deals feasible but also expands the range of investment opportunities, including properties requiring rehab or those in emerging markets, thus creating more profitable and sustainable investments for my clients.

What creative financing options do you offer to sellers, and how do you structure deals to benefit both parties involved?

As a real estate agent specializing in creative financing, I offer several innovative options to sellers that cater to both their needs and those of potential buyers.

Before addressing acquisition strategies I want to share our exit strategy. Lease-option agreements are our main exit strategy; they allow buyers to rent the property with an option to buy later, providing investors with cash now, monthly flow, and back-end profit when the resident exercises the option to purchase.

One thing we do differently, is we start with a lease-option buyer who has 5-10% down and we let them choose the house they want to buy but don’t yet qualify for and we match them up with an investor that buys the house on their behalf and sells it to them on at a pre-negotiated price.

For acquisition, we look at 3 main strategies:

Assumable mortgages offer an opportunity for buyers to take over the seller’s existing mortgage, which can be advantageous if the terms are favorable. The investor must be able to get a loan from a bank with this option.

Seller financing is a popular choice, where the seller essentially becomes the lender, providing buyers with more flexible terms than traditional bank loans and offering sellers a steady income stream.

Lastly, subject-to and wraparound mortgages are an option for sellers who still owe on their mortgage. Subject-to just means we are taking over the existing financing “subject to the current terms. With “mirror-wraps” we are creating a new mortgage that mirrors the existing one.

When structuring these deals, it’s crucial to ensure fairness and transparency. Agreements should clearly outline terms like interest rates, repayment schedules, and each party’s responsibilities. Involving legal professionals in drafting and reviewing contracts is essential to ensure compliance with legal requirements and the protection of both parties’ interests.

These creative financing options not only provide sellers with flexible and attractive selling solutions but also open the market to a wider range of buyers and address specific investor needs such as limited cash availability or credit constraints.

These approaches facilitate transactions that might not be possible with conventional financing, thereby benefiting sellers, buyers, and investors in the real estate market.

How can an investor differentiate themselves to attract agents to want to work with them?

To attract top real estate agents, an investor should focus on demonstrating preparedness, and financial readiness. This includes having a clear investment strategy, knowing the type of properties they want, and having finances in order, such as proof of funds or pre-approval for financing.

Agents are more inclined to work with investors who are serious, informed, and ready to act quickly. In addition, investors should show a commitment to building long-term relationships rather than seeking one-off deals. This approach signals future business opportunities and stability for agents.

Being flexible and open-minded to agents’ suggestions, including considering properties or strategies outside their immediate criteria, can lead to more opportunities. Offering referrals and testimonials after successful transactions can further incentivize agents, demonstrating appreciation for their hard work and aiding in their business growth.

Lastly, respecting the agent’s expertise and treating them as equal partners can solidify a productive and enduring professional relationship, making the investor a preferred client for top real estate agents.

How can an agent differentiate themselves to attract investors to want to work with them?

To attract investors, real estate agents need to showcase specialized skills and knowledge tailored to the investment market. A deep understanding of local market trends, property values, and various investment strategies is essential, as it enables agents to align properties with investors’ specific goals. It helps if the agent is an investor.

Demonstrating this expertise through a proven track record of successful investment deals can significantly boost an agent’s credibility. Offering customized services such as detailed property analysis, market reports, and investment portfolio reviews can further appeal to investors seeking more than just property listings. Investors should know how to run the numbers but if they are new it can be helpful to share knowledge and resources like repair estimate calculators.

Possessing a strong network of relevant professionals like contractors and legal experts also adds significant value, providing investors with a comprehensive resource hub. Agents should also prioritize effective communication, being responsive and proactive in keeping investors informed about market changes and opportunities.

Utilizing technology for market analysis and property searches shows a commitment to efficiency and effectiveness. Adopting an educational approach by providing resources like seminars and newsletters can attract investors who are keen to stay informed and learn more about the market.

Demonstrating flexibility and creativity in negotiations and deal structuring, including an understanding of creative financing options, can set an agent apart. By focusing on these aspects, agents can position themselves as invaluable partners to investors, fostering long-lasting professional relationships built on expertise, trust, and tailored service.

What are the most unique solutions you have ever come up with to solve a buyer’s or seller’s problem? Give a specific example.

We try to give sellers what they want, which is usually the highest price, but not always. Sometimes they need a fast, easy sale and are willing to drop the price.

Our first deal was with a seller who jumped on a cash offer much to our surprise. We found out later that a scammer had taken advantage of her and she sent all her proceeds to him before he disappeared. We felt bad for her and helped her move.

We help buyers who can’t get a mortgage become homeowners. We bought a duplex and put a lease option buyer in it who house-hacked it and now rents out both units. There were five wins with this deal, the seller, the buyer, the agent, the lender, and the investor.

What role does market research play in your strategy and how do you stay informed about local real estate trends?

For us market research plays a large role since we do deals nationwide. We use software like Privy to find properties and REI Market Watch to tell us which macro and micro-markets to look at. It aids in making informed decisions about property selection and aligning investments with areas that show potential for growth, stability, and appreciation.

This research is also crucial in developing effective pricing strategies and assessing potential risks, ensuring investors make market-appropriate investments for maximum return. Understanding trends in supply and demand, as well as being aware of economic and regulatory shifts, allows me to provide strategic advice that mitigates risks and capitalizes on market opportunities.

To stay informed about local real estate trends, I employ a mix of data analysis, networking, and continuous education. Regular analysis of real estate data, including listings and market reports, provides a quantitative understanding of the market. Networking with industry professionals and participating in community events offers insider insights and a ground-level view of market dynamics. I also prioritize continuing education through seminars and webinars and stay updated through industry publications and reports.

The use of advanced analytics tools and technology ensures accurate and timely market analysis. This multifaceted approach enables me to offer current, informed advice, helping investors navigate the complexities of the real estate market effectively.

All real estate investing is local. Every local market is different and your success depends on your ability to correctly match your investing goals and strategies to local market cycles and act accordingly.

What’s the best way for an aspiring investor to start relationships with agents?

For aspiring real estate investors, establishing relationships with agents begins with targeted research to identify agents experienced in working with investors and knowledgeable about your area of interest. Reaching out to these agents professionally, through email, phone calls, or in-person meetings, sets the tone for a serious and informed interaction.

Before these meetings, it’s crucial to be well-versed in the real estate market and clear about your investment goals and expectations from the agent, demonstrating your commitment and readiness to engage in real estate investing.

Additionally, attending local real estate networking events, seminars, or investor meet-ups can provide opportunities for informal interactions and connections with agents. Utilizing social media and online platforms, especially professional networks like LinkedIn can also be effective in connecting with agents.

Participation in real estate investment groups and discussions increases visibility and the likelihood of making valuable contacts. It’s beneficial to offer value and show a genuine commitment to a potential long-term relationship with an agent, which makes them more inclined to work with you.

Asking for referrals from existing investors and approaching agents with respect and professionalism are key to fostering successful connections. Finally, maintaining engagement through regular follow-ups and staying in touch after the initial contact helps solidify these budding professional relationships, paving the way for successful real estate investment partnerships.

What does an investor-friendly agent look like and what qualities would you look for?

An investor-friendly real estate agent is distinguished by their specialized knowledge in real estate investment and experience working with investors. Such an agent should be well-versed in various investment strategies, market trends, and areas with potential for growth or high rental yields.

Their track record should reflect successful transactions with other investors, showcasing their understanding of the unique aspects of real estate investing. Essential qualities include strong analytical skills for assessing market data and potential returns on investment, along with a robust network of relevant professionals like lenders, contractors, and legal experts.

Effective communication and responsiveness are key to ensuring that investors are kept informed about opportunities and market developments. Furthermore, exceptional negotiation skills are crucial for securing deals that align with an investor’s strategy, and creative problem-solving abilities can help navigate the unique challenges of real estate investing. Integrity, honesty, and transparency are non-negotiable traits, that establish trust and reliability in the professional relationship.

An investor-friendly agent should also be committed to continuous learning and adaptability, staying abreast of the latest market trends and regulations. Patience and a willingness to engage in long-term partnerships are also vital, as real estate investing often involves navigating through various market cycles. An agent embodying these qualities is not just a facilitator of transactions but a valuable partner in achieving successful and profitable investment outcomes.

Thanks to Toby Hanson for the major contribution to this post!

The Housing Market Is Rebounding, but What Happens after Stimulus Support Measures Fall Away?

Originally published on Forbes.com

There is an old saying in the real estate development business: when a novice makes a mistake, it’s because they missed the nuances of the market; when a pro makes a mistake, it’s because they missed the obvious. Some participants in the residential sector have been applauding the resilience of homebuyer demand and rent collections while looking over their shoulder, bracing for a sudden slap in the face when the government “stimulus” winds down.

Is that slap really obvious, and real? And if so, will it be felt by the entire housing market, or only at certain levels of the market? We need to look a little deeper because very little is obvious in this environment.

All agree that steps were taken very quickly to inject money into the economy and to provide relief for people with mortgages. These measures have included:

Direct payments to the general public and aid to small businesses
Enhanced unemployment benefits ($600 “FPUC”)
Mortgage forbearance
Rent forbearance and eviction moratoria
Limits on foreclosure actions

Massive transfers from the federal government have kept the economy from sliding into a depression, despite depression-like unemployment rates. Even with states, cities, and suburbs reopening their economies, it will take a while to get back to anything close to full employment. Government transfer payments have kept spending from collapsing completely, for now.

Many in the housing business are saying there has been a “V”-shaped recovery in home sales, as well as amazing resiliency in the apartment market, but what happens after the music stops? Nobody can forecast this with confidence, but it certainly is a good time to start thinking through the possibilities and doing the analysis.

In order to address this question, it helps to divide the residential market into for-sale and for-rent and think about each sector separately.

For-Sale Housing

It looks a lot like a “V” for home sales. Sales by many builders have been increasing week-by-week since the middle of April. Some said that May was their best month yet, and we are hearing the word “amazing” uttered by executives at these companies. Homebuilders and developers are feeling more confident about their outlook for the rest of the year, homebuilder stock values have doubled since March, and a relatively small number of new-home developments have seen significant price reductions. The climb in the numbers of mortgage applications for home purchase has been fast and steady in recent weeks. That is all remarkable in the face of these shocking unemployment rates.

Government measures have certainly been supportive of home prices and home sales during this crisis. If the fiscal stimulus is removed as scheduled at the end of July, aggregate spending will decline, which will result in an economic drag that could indirectly affect home buyers.

When forbearance programs and foreclosure moratoria come to an end, we might see a surge of foreclosure activity. More than 8% of mortgage loans are currently in forbearance, according to the Mortgage Bankers Association, which hints at the extent to which there is economic distress that has not yet been reflected in mortgage delinquencies. That said, a survey by LendingTree revealed that 70% of the people who applied for forbearance actually had the money to pay their mortgage, and didn’t “need” it in the strict sense of the word. Be that as it may, there are certainly some homeowners who are avoiding delinquency by deferring payments to a later date under these forbearance programs.

People who lose their homes to foreclosure often look for a home to rent. Higher foreclosure rates would add to both supply and demand for single-family for-rent, adding more fuel to that already fast-growing segment of real estate.

The good news is that the unemployment rate is dropping, which is reducing the number of homeowners who are without income. The pace of improvement in the labor market is going to be the key to sidestepping a foreclosure problem, so those numbers bear watching.

That said, the for-sale sector might be able to escape a serious impact, but not for a happy reason. The current economic crisis is impacting the lower echelons of society disproportionately wherein the retail and service/hospitality workers have taken the brunt of the losses. The people who buy new-construction homes are typically at an economic level that is less-acutely affected by this problem. They have more secure jobs, much more money in savings, and many have participated in the strong rebound in the stock market.

Add to this the fact that people think about a home as a refuge, even more now than before the health crisis and the stay-at-home orders. And to the extent that new homes start to offer enticing healthy-home features that were not common in pre-Covid homes, that could add to demand for those newly-built homes.

Going into this crisis, there was an undersupply of housing and a low level of new home construction relative to the pace of household formations and replacement demand, and these conditions will continue to support new home sales in the years to come. This is the key distinction between this downturn and the last one, which was driven by an oversupply of housing.

That is not to say there won’t be some additional incentives on inventory homes. We are already seeing builder concessions appearing in the marketplace. The first-time homebuyer market, which was just starting to build a lot of momentum, will probably be set back to some extent, particularly in regions that have been hit the hardest by layoffs. And at the other end of the price spectrum, buyers seeking “jumbo” loans are finding it difficult due to the disruption in mortgage markets.

Nonetheless, the fundamental drivers of housing demand are still in place. Millennials are continuing to have children, and that will fuel increased demand in the suburbs. This demand will be served by homes built for sale, as well as single-family homes built for rent; either way, this demand will still generate more home construction. Assuming the recent uptrend in hiring in the economy continues, the outlook for new home sales is promising.

Rental Housing

Early in this crisis, when rent forbearance measures started to emerge, it was anticipated that landlords would suffer a large number of renters skipping their rents. April came, and collections held solid. May came, and again rents were collected at close to normal rates. June 1 came, and, so far, rents are being collected at high rates (with some increased incentives being needed for some newly built developments that are still in lease-up). Some apartment operators report that they are getting new leases at a pace not quite at pre-Covid levels, but “getting pretty close.”

That said, renters are not always on as solid a financial footing as the group that buys, so will things go south as soon as the enhanced unemployment benefits drop out? The answer will differ between various types of apartment complexes. The class-A buildings have been holding up the best in terms of collections and rents, with some minor reductions in collections in class-B and more significant reductions in class-C, where the tenants have insufficient savings to tide them over. Class-C apartments are also home to a large number of people who are using some of the supplementary unemployment money to cover their rent.

This crisis is worsening the disparity among economic groups in this country, and as a consequence the class-C apartment market-rate developments are the ones that face the most serious risks in the second half of this year. Many people now on unemployment who experience difficulty getting re-employed as the economy reopens, and who after July will not get the extra $600 payments, will seek forbearance starting in August, which will have an impact on the revenues collected by their landlords.

The high-end apartments, by contrast, often house people who are “renters by choice.” That refers to the group who could afford to buy a home, but prefer the convenience of being a renter. This type of tenant has increased in share in recent years, with some developments renting to people who have incomes of $75,000 to $100,000. The class-A buildings will likely be well supported by demand from this population. There will be some additional downward pressure on rents in the second half of the year, but by next year rent growth in this type of development is expected to start to re-appear, despite a fairly full pipeline of projects heading toward delivery.

Some developers are feeling quite sanguine about the prospects for new luxury rental buildings in prime locations, noting that the crisis has delayed or killed (via financial partners backing out) a number of projects that would ordinarily have been competing for them. They foresee a reduced supply of new rental completions three years from now as a result of this, which makes them feel more optimistic about the future demand for their offering. They also see the opportunity to set themselves apart from the competition by offering healthy-home features that are not available in older luxury buildings, such as improved HVAC systems, antimicrobial surfaces, and some touchless elevator technologies that are currently in use in Europe and Asia.

Flat Prices on Average, But Wide Variations Underneath

When the fiscal and other supports wind down, there likely will be some additional concessions at managed rental developments (read: two to three months worth of free rent), most acutely in the working-class rental buildings. On the for-sale side, there will probably also be an uptick in foreclosures after the moratoria end, and that will likely have a negative effect on housing in the middle price ranges, especially in metro areas whose economies are concentrated in the hardest-hit industries (such as tourism).

Taking all of that into account, the forecast is for flat single-family home prices on average for this year, returning slowly to rising average home prices starting in 2021. Of course, averages can be misleading. The “A” projects in the “A” locations will likely remain strong, offsetting some of the weakness in the moderate price tranches. There will also be differences among metro areas. The economic and housing effects will be quite different in Las Vegas, Detroit, New York, and Miami.

The forecasts of home prices by economists who follow housing markets are all over the map. The Zillow 2Q Home Price Expectations Survey features forecasts from 100 economists (including the author), and those forecasts range from -10% to +5.5% for the calendar year 2020. Such a divergence reinforces the point that in this environment, very little is obvious.