Q4 2021 Quarterly Report Deep Dive: What’s Going on in these Real Estate Markets?
Despite global uncertainty, U.S. real estate is poised for another record year. High demand and low inventory continue to drive appreciation upwards in markets across the country.
Our latest quarterly reports break this down at a local level across 11 different markets. Whether you invest locally or out of state, this all-encompassing report shows you trends specific to your area. Each provides detailed information that you can use to inform your investment decisions to dominate your market in 2022.
Real estate investors should pay attention to these factors
Home appreciation hit record highs in 2021 and offers many reasons to be optimistic in 2022 as well. With mounting global tension stemming from Russia’s conflict in Ukraine, increasing commodity prices, and other disruptions this may seem hard to explain. Here are several factors that impact real estate.
Right now, there’s a great disparity between supply and demand. In the wake of COVID-19, people began to seek housing that offered room to spread out. This, coupled with wealth gains through many means (crypto, stocks, higher wages, etc.) enabled buyers to afford down payments. As demand for housing increased, supply hit historic lows, contributing to higher prices.
Pay attention to whether more homeowners begin to sell this spring. Also look into building permits (focus on completions, not starts), local legislation that impacts zoning, and other factors that relate to inventory.
The good news is that employment numbers are promising. According to Sundae’s Director of Research and Lead Economist, Polina Ryshakov: “Every economist always looks at jobs first. Strong job numbers mean that people can pay for food and shelter. Employment grew for the 11th consecutive month and added over 400,000 jobs. At this point, more than 93% of positions lost to the COVID pandemic were regained and the unemployment rate declined to 3.6%. This only happened 3 times in history. ”
As these numbers approach pre-COVID-19 levels, it shows that the job market is bouncing back. Furthermore, she elaborated by stating that “the fact that the unemployment rate is lower than pre-pandemic before we recovered all jobs means that not everyone who was part of the labor pool returned to the labor pool. But it does mean that a very large percentage of people are able to find a job.” Ultimately, a strong job market and high employment means that there are more potential homebuyers.
Inflation is at a 40 year high. This has direct and indirect effects on a multitude of areas. Here are some things to watch:
- Interest rates. Recently, the Fed increased interest rates for the first time since 2018. There are more hikes planned to combat inflation. Interest rate jumps mean higher monthly mortgage payments, however, people are continuing to buy.
- Supply chain disruptions stemming from Ukraine and China’s recent lockdown impact the availability of supplies needed to build houses. They also tend to increase the cost (not to mention inflation) and cause delays in the house building process.
- Consumer Price Index (CPI) refers to the cost of various goods to consumers over time. Due to inflation and supply chain disruptions, costs are going up. This, however, doesn’t measure affordability in terms of housing prices.
It’s important to remember that real estate still serves as a hedge against inflation. As the value of the dollar gets devalued, investors around the country are flocking to buy real estate. The fact that it’s a tangible asset that can be used for multiple purposes offers investors plenty of protection and upside given the housing shortage.
Another crucial factor in play is demographics. Younger millennials are at their prime home-buying age. They have a strong appetite for housing as do the generations following them. Investors should pay close attention to what this group is looking for in a property.
Common trends across U.S. real estate markets
Real estate is very location specific and dependent on factors in a given area. Even so, some interesting trends emerged across most of the markets we analyzed in our report.
With a limited supply and high demand for housing, competition is strong amongst investors. To win, many investors are spending more on properties. Of course, spending more money upfront leads to tighter profit margins.
Even at mark ups, investors continued to buy properties because they saw upside. The secret sauce is knowing when to employ a given strategy. For example, a creative investor who typically does a clean and list with a short turn around might decide to do a more comprehensive rehab. That way, there’s more opportunity for forced appreciation.
People want more space
Since COVID-19 started, there’s been a trend towards more space. Remote work life has increased the demand for three or more bedroom households in many areas. This leaves space for an office, plus bedrooms, or even an at-home gym. As the world “opens up,” this is something to follow.
A way for investors to take advantage of this trend is by finding ways to maximize space. It could mean converting a basement into another bedroom, or it might mean adding an ADU to a property. Keep an open mind and explore hidden upside potential as you place offers.
Cash up front increases your bottom line
When margins are tight, cash is king. In these scenarios, financing is even more important because it could be the thing that makes investors money on the other end of the transaction. Many investors are leveraging cash “to save on holding costs and bolster their bottom lines” noted Ryshakov. There are a variety of ways to get funding for deals, which you can assess based on your strategy and risk tolerance.
Keep these observations and potential solutions in mind as you invest in a given market. For more information on your market, download our comprehensive report.