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The Paradigm Shift in the Real Estate Market and What’s Causing It

Previously, we looked at the question of Bubble or no-Bubble for the Real Estate Market.  In it we mentioned that institutional buyers had entered the market following the 2008 real estate collapse, taking advantage of high inventory and low real estate prices. Here, we’ll take a look at what has changed in the real estate market since 2008, the major catalysts for that change and how institutions play a part.

What’s Causing the High Prices in Real Estate?

There’s been a paradigm shift and, at least in part, it’s caused by this: prices started to rise, started to return to pre-collapse levels where the institutions historically cease acquisition mode, but this time institutions continued to acquire real estate at record levels.

Real estate agent standing in front of a house by a For Rent sign.

This means that, not only are retail buyers competing with other retail buyers for homes, what many do not realize is they are also competing with the likes of Colony Capital, Progress Residential and Resi-Cap, hence the rise in demand-based pricing. Tweet: Not only are retail buyers competing with other retail buyers for homes, what many do not realize is they are also competing with institutional buyers, hence the rise in demand-based pricing. https://ctt.ec/cEb5O+

You see, the driving factors, the story if you will, is much deeper than meets the eye.

How Is the Housing Market Changing?

As stated, housing in America is in the midst of a paradigm shift in the real estate market. Home ownership in this country is at a 52-year low! Outside the annals of professional and institutional investors, no one is talking about this.

To understand the shift, we must explore today’s largest demographic: The Millennial. Recent market research studies identify that YES, they do aspire to own their own homes someday, but not yet.

The Millennial demographic is staying in school much longer than their parents did. It is not uncommon for young professionals to be in college well into their mid to late 20s. More time in school means traditional relationship formation, aka marriage, is also delayed. Getting married in your mid to late 20s or beyond is commonplace today. Add in the weight of student loan debt, and renting is their chosen mode of housing. Long gone is the stigma once attached to renting. It’s no longer, do you rent, but, where do you rent.

For additional consideration, we must also factor in the delay in family formation (having kids), again occurring much later than in the past. That, along with the reduction in family size, and well, you can see why we are experiencing the nationwide boom in multifamily housing units.

Next, we must look at the grossly under-saved Baby Boomers. Impacted by more market corrections than any generation in American history, we are witnessing a generational transformation from home ownership to the fixed cost of renting, which frees up what is often their largest bastion of cash, also known as equity, to help supplement their grossly underfunded retirement accounts.

Add in the millions of Americans that don’t qualify for traditional mortgages and the demand for single family rental homes and apartments has never been higher. Rising interest rates, stock market corrections and/or  a significant event that erodes consumer confidence will only add to demand.

A recent study revealed that today 48% of all homes in LA County are now owned by institutions or private investors. Factor in that home ownership is now at the shortest tenure in American history, at only 7 years mainly due to the need for employment mobility, and you could argue that, unless you paid cash for your home, even those who own a home are pretty much still just renters.

Opportunities for Real Estate Investors 

As you can see, the changes occurring in the real estate market are opening up opportunities for those interested in owning rental property. However, with institutional buyers’ interest in acquiring property not yet waning, there’s added competition. For those who know where to look and have the tools to do so, there are plenty of real estate deals to be had. Just remember that  all segments of real estate and real estate investing offer varying levels of risk and reward and are directly tied to identifying the needs of that market and serving those demonstrated needs.

Free Real Estate Investing WorkshopFor example, doing a fix and flip in Buffalo may pose huge risk for investors, while Austin, TX offers tremendous opportunity for profit. Building a portfolio of rentals in a market experiencing population decline like Erie, PA offers a higher probability for vacancy, while a robust rental portfolio inclusive of Denver, Charlotte, Phoenix and Nashville offer strong opportunities for monthly rental income and long-term asset appreciation at the hands of expanding population bases.

To take advantage of unprecedented opportunities that are Market Wise, capitalize on our more than 250 years’ worth of accumulated experience in knowing what market segments to invest by contacting OTA Real Estate for additional information.


DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.