Every real estate investor is afloat in a vast economic sea. As an investor, it’s easy to believe you’re on stable ground … only to wake up and find you’ve drifted far from your goals.
We believe SMART real estate investors (you!) have to act a bit like ocean biologists … tracking the winds, noting the undercurrents, and keeping detailed observations of the environments you find yourself inhabiting.
One way to take your notes is to read the news. And in this edition of Clues in the News, we bring the news to you! Listen in to hear from:
- Your economic sea biologist host, Robert Helms
- His lowly research assistant, Russell Gray
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Slumps in home sales, builder confidence
This is a trend we’ve been observing for a while … existing home sales are decreasing. In June, they dropped 1.8% to the second lowest level this year.
If we stopped right there, you might think the economy is in trouble because people aren’t buying houses. But let’s take a closer look.
While sales of homes overall are dropping, the median home price in June was $263,800 … 6.5% higher than the same time last year.
All housing types aren’t equal. While prices are rising for houses in the 250k+ category, they’re falling for homes under 100k.
Just further evidence, like Robert Kiyosaki says, that the rich are getting richer while the poor are getting poorer.
The article linked above quotes Lawrence Yun, NAR chief economist, who says, “The demand for buying a home is as strong as it has been since before the Great Recession.”
So why are home sales dropping?
Many factors could contribute to a slow market … the growing number of millennials with high debt and inadequate income, for example. And the flux of institutional investors entering the real estate market.
Severe housing shortages are also leaving folks on the sidelines.
While the average median home price has risen, the median price of a new home has dropped by 3%.
Homebuilder confidence in recent months has reached record lows … leaving buyers hoping for a new home in the lurch.
If you look at the stock market, it would be easy to believe everything is peachy. But look at homebuilders … and you’ll see an indicator that not everyone has a bright outlook right now.
Fewer new homes, more home improvement
Speaking of homebuilders, housing inventory is at a 30-year low.
This while home prices have risen to pre-crisis levels in most markets (and far higher in a select few).
It’s a conundrum. Why are homebuilders moving at a snail’s pace? Why is homebuilder confidence so low?
Take a look at capital markets, and you’ll get a partial answer … real estate is heavily dependent on financing, and while the markets may have recovered from 2008’s recession, banks are still wary about giving loans.
In addition, 78% of homebuilders complain that labor shortages are their No. 1 concern.
Reliable, skilled labor is difficult to find. One reason? Construction workers found different careers during and after the recession … then never returned to the home-building business.
In lieu of buying new homes, homeowners are instead spending record sums on home improvements.
According to an article in the Wall Street Journal, “A shortage of new single-family homes across the U.S. is pushing up prices and locking many buyers out of the market.”
Note the certainty in that statement? Reporters are quick to assign cause and effect.
It’s your job to look at the bigger picture and see what’s going on. Then reexamine the conclusions made in the news … and draw your own.
Sales to foreigners up, buyers and sellers struggle outside U.S.
While home sales overall are down, Forbes reports that foreign investments in U.S. properties have skyrocketed recently. Sales to foreigners are up 49% over last year.
If you’re a U.S. investor familiar with the current political situation, you may be wondering what these investors are thinking.
But think about it … the U.S. has strong property rights, lots of renters, a relatively stable government, and strong infrastructure.
Buyers from China and Canada want to move their cash to a place where they see a better long-term future … and the U.S. fits the bill.
Speaking of Canada, a model produced by Better Dwelling predicts that Canadian home prices still have farther to fall.
Canadian real estate markets started crashing when the Canadian government made policy changes that hinder foreign investment.
It’s a lesson for investors to look at both the economics and the politics of a situation … then align themselves financially to policy decisions for the smartest payoffs.
You also need to be aware of the data … and what that means in terms of rising trends. While the Canadian housing market is struggling, lonely urban centers are predicted to be the next big real estate trend in the country.
While our friends across the border are seeing home prices fall drastically, our friends across the pond are seeing a dearth of affordable housing.
An article we found recommends the London government lower tax rates for new homeowners and suggests 100% mortgages as another option.
The alternative is that London will see a “brain drain” as young workers unable to find affordable housing move outside of London.
This is a problem in the U.S. too, as large companies seek to find locations where workers can afford decent housing and quality-of-life measures are high.
The good thing about problems? (And there is a good thing.) If you’re creative, a problem is only an opportunity to create a solution.
Businesses and people need good places to live. Real estate markets have the opportunity to create them.
Homelessness and hedge fund managers
A recent article in Bloomberg listed the cities where rent hikes leave the most people homeless.
The bottom line is markets with less slack see more homelessness. The message for you? Slack is good.
It’s crucial for you to dig into your local market and figure out the dynamics driving outcomes. Many things can put a squeeze on your bottom line … make sure you’re aware of current and potential trends in demographics, jobs, and the local economy.
Winning markets don’t require a good economy to stay viable. They allow you to stay profitable even when factors change and be the recipient of demand when other markets are struggling to keep prices down and renters happy.
Remember, when you invest in the rental marketplace, you’re getting into a long-term contract. But a stable one.
Stability is probably one of the big reasons hedge fund managers and other wealthy investors are making a break for real estate.
They see the opportunity for a safe haven … but most don’t want to get their hands dirty. If you do, you may find doors opening for you.
Tune in to our next episode to hear an amazing guest make his case for entrepreneurship.
Until then, go out and make some equity happen!
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