How will historic shortage of homes affect real estate investors?
According to the Federal Reserve Bank of Kansas City, new home construction per household is at the lowest level in 60 years. High development costs and builders’ preference to construct more expensive homes is exacerbating the housing shortage in the country. Additionally, regulations left over from the housing crisis period has elongated time required for permits and approval. The current development cycle is a case of the pendulum swinging too much to the other side. This has also made building close to cities more expensive and fails to meet rising millennial demand. Members of this generation that have the financial wherewithal to purchase suburban homes have enjoyed live-work-play environments. As a result, many are hesitant to commit to long commutes and cannot afford close-in single-family homes. Finally, there is a shortage of construction workers, further crimping supply. As a result, there are a large number of offers for entry-level homes and deals are closed several thousand dollars above list price. As millennials opt to remain near their current neighborhoods, and rents offer a better value than purchasing in the area, real estate investors stand to benefit through this cycle.
Using Big Data to Locate and Avoid Overpaying for Investment Properties
The overall picture for available homes is not much prettier. According to the National Association of Realtors, only 1.9 million homes were available for sale in February, representing 4.4 months of supply. There is good news and bad news scenario here for real estate investors. The S&P Core Logic Case Shiller Home price index was up 6.3 percent in 2017, which is good news for investors. However, this pace is well above inflation and wage growth and unsustainable. As a result, finding well-positioned investment properties is becoming more difficult. Investors that don’t have access to reliable analytics and trends may find themselves overpaying for investment properties. This is where HomeUnion®’s platform benefits investors. By targeting neighborhood and markets where good investments persist and utilizing Big Data, HomeUnion® can identify worthwhile investments in near real time. To address the heated bidding climate, we establish bid ranges on every single-family investment property. The range is based on algorithms that look at trends and the velocity of sales in a neighborhood to come up with a max price that should be paid for each investment property. HomeUnion® stays with the investor through the entire investment lifecycle, which aligns our goals with those of our investors.