April 20, 2016
Like the butterfly effect where a single butterfly flapping its delicate wings in Bermuda can help cause hurricane winds in the Florida keys, there’s no doubt that billions in investment can swing housing markets up, or flip them on their head. Accurate data on housing supply and demand, and where it is heading is critical information for real estate and mortgage professionals and CEOs.
It is a pivotal piece of the game for scaling operations and setting the right metrics and trajectory for the near future. We all want a better window into the future. So how is investment affecting the marketplace? Who is buying big and where are they buying? How much is there to buy? Is it a good time to head for the hills…or start your own empire?
-- The 6 factors influencing inventory levels now
-- The big fund managers buying and selling now
-- Building trends
-- The leading data indicators suggesting the hottest movers for 2017
Understanding and leveraging the law of supply and demand is one of billionaire real estate investor Sam Zell’s core fundamentals. Mastering that data makes all the difference for mortgage lenders, real estate agents, investors, fund managers, and CEOs. It dictates velocity of sales, prices, level of wealth preservation, business volume, income, and net profit.
Getting this wrong can (and has been) be catastrophic.
- New construction
- Access to financial leverage
- Interest rates
- Appetite for real estate assets
- Moving trends
Real estate investment is red hot again. Many are likening the current landscape to the run up in 2005. Yet, many experts see plenty more gas and room to grow in this cycle. CBRE’s 2016 Global Real Estate Outlook calls for growing rents, and active capital markets, though stating the pace of growth may “slow after six years of recovery and price appreciation.”
Prudential’s Trends for 2016 report forecasts “global transaction volume to increase further in 2016, as investors have plenty of capital to deploy.” Specific indicators named by Prudential include falling vacancy rates, and “investors following occupier performance” away from gateway cities.
According to Forbes a bond bear market which could last 25 years, has driven 94% of those surveyed to say they will increase real estate investment in the U.S. this year, and might make real estate the best investment in 2016.
However, Tom Rydberg of 1st Advantage Mortgage suggests that current statistics on the percentages of investors in the market may be dramatically skewed due to the fact that many home buyers are claiming properties are investments on mortgage applications, when they plan to use them to live in. Why? Because many lenders have become fearful of over-regulated residential lending, and have made investment property loans easier to get than owner occupied ones.
Always the contrarian investor; Sam Zell has made the headlines several times recently for massive apartment building sell offs. This totals tens of thousands of units between late 2015, and early 2016 – and is vocally saying that he thinks we’re headed for a downturn…and soon.
It seems no one learned from Sam’s last big deal when he offloaded a record $39B in office properties to Blackstone, right before they went bust and most ended up underwater!
Yet, many other notable buyers are making equally significant investments. This includes the Sutton family recently taking down a record breaking off market deal in Bushwick, Brooklyn. Fund mogul Bill Ackman recently purchased the second most expensive condo in NYC ever, for just over $91M, as an investment. And Warren Buffett has bulked up his personal real estate portfolio in a big deal with Sears.
Real estate investors and firms must be careful when using news headlines and generic stats as their barometer of inventory as all real estate is local. Check out these recent figures…
NAR reports listings down 4.4% y-o-y in Jan. 2016 to the lowest level since 2005
There were just 1.79M homes available at the beginning of 2016 [Housing Wire]. This represents a 5.1 month level of inventory nationally
FMAdata reveals oversupply coming to hot markets like Miami Beach which has over 24 months of homes for sale
America’s Next Hot Markets
We're always looking for the next SOLID markets. Here are a few indicators as to hot investments (and trends that could build them) worth noting:
Listing inventory falling 24% in Charlotte, NC
The Lux Group promoting multimillion dollar luxury short term rentals in LA
Yardi Systems detailing highly acclaimed Pittsburgh as a future city being driven by robotics, millennials, and as an epicenter of innovative building developments
20% more households moving to the suburbs than to the city
Some cities are banning or limiting Airbnb style rentals and investors which could change the ma of where investors can own income producing properties
There are a number of factors impacting supply levels this year. So far investors remain bullish and highly active, led by some of the most well-known and sophisticated. NAR Chief Economist consistently warned that new home building has drastically been dragging historical norms, and population growth. That could lead to fewer home sales in 2016. CNBC reports that one of the most significant side effects of housing shortages is higher prices; for example in Washington D.C. where half of the homes in January were on the market for just 26 days, and the average sold home went for 98.6% of the asking price.
However, inventory levels are changing rapidly, with some severe oversupply cropping up in environments which may not be as in demand over the next several years as they have been, while affordability, lifestyle, and tech jobs act as a magnet for homebuyers, renters, and investors.
Of course if you ask any real estate agent it’s always “a fantastic time to buy before the market goes up,” and somehow simultaneously “an urgent time to sell that property before the market goes down.”
What is for sure is - the one with the best data will win!