Maximizing a Challenging 2023 Housing Market
Technology Can Help Those Who are Still Looking to Find Opportunities
By Tim Reilly
The real estate market has changed dramatically over the last year. With home price appreciation softening market-to-market and inflation running wild, something had to give.
Successive increases in mortgage interest rates beginning in the second half 2022 put the brakes on the previous year’s unprecedented homebuying activity as the housing market shifted into a new ‘price discovery phase.’ Consequently, the single-family rental (SFR) and fix/flip investor activity which represented 4-5% of the total purchase market began to slow down as well.
According to CoreLogic data, SFR growth has decelerated in the second half of 2022. A Redfin report also confirmed investors are retreating from the purchase market. According to the report, real estate investor purchase activity fell 30% in the third quarter.
Rental growth is beginning to soften as well. Based on an analysis of the CoreLogic Single-Family Rent Index, Hunter Housing Economics is forecasting rent prices will decrease slightly across the country in the first half of 2023. It will require investors to fine-tune and consider the drivers of their portfolios more carefully.
Looking back on 2021, investor participants enjoyed the macro-benefits of a booming market like all boats rising during the high tide. Now, as a result of the cooling housing market, cap rate and ROI pressure is impacting purchases unevenly throughout differing geographic markets. Persistent inflation coupled with more expensive capital repair costs, have suddenly made acquiring, rehabbing, and pricing a rental or flip property a more challenging puzzle for even the most experienced investor to solve. Welcome to the “new normal.”
However, analysts are still favoring the SFR market as demand for rentals is expected to grow. The shortage of affordable homes combined with mortgage rates trending above 7% continues to make purchasing a property difficult for many would-be buyers. According to Realtor.com, the gap between single-family home constructions and household formations grew from 3.84 million homes at the beginning of 2019 to 5.8 million homes as of September 2022. It is a factor driving growth in the SFR market, as well as a shift in sentiment towards renting.
A new suburban renter who values the flexibility and ease of renting has emerged from the pandemic and is here to stay. Renting well managed properties can offer a high standard of living without the commitment and expense of owning a home. And the growing trend appears to be transgenerational—from Gen-Z to Millennials and even Baby Boomers opting for the no-maintenance living offered by SFRs.
As history teaches, where there is demand there is opportunity. Investors who continue to find opportunities amid the turbulence are more likely to thrive through this slowdown. One thing SFR investors, owners and developers can do to position themselves for success and prepare for the road ahead is put technology and property data to use. The right tech stack and data resources can help stabilize portfolios, maximize a variable operating cost structure while enhancing operational efficiencies, and refine acquisition and/or disposition strategies. Below are some methods for investors to do just that.
Finding Acquisition Opportunities
As home prices begin to fall in certain metros but continue to appreciate in others, investors have the more difficult task of identifying which opportunities will yield a good return. The latest proptech embedded with artificial intelligence (AI) may be able to help in a number of ways:
» Pinpoint desirable SFR market locations where property values are stable or appreciating.
» Create a personalized buy box with intelligent search functionality to quickly sort through available investments based on specific property characteristics.
» Use computer vision AI to instantly estimate the condition of properties.
» Estimate the cost of repairs and property value after improvements are made to quickly establish potential ROI.
Property Maintenance
Single-family renters have higher expectations for the quality of finishings and responsiveness to property issues. To help you get top dollar for your rentals and retain tenants, a platform that includes automated workflow, assignments, and access to a network of qualified contractors can help you streamline your property management operations:
» Scope renovations and repairs to allocate budget and timelines appropriately.
» Access a network of vetted contractors to quickly dispatch a qualified professional
to complete repairs.
» Use AI to compare the condition of your properties to comparables in the same market.
Portfolio Management
As the market fluctuates, asset managers need flexible technology that allows them to focus on strategy rather than executing the thousands of repetitive tasks required to effectively manage their portfolios. The best asset management technologies leverage automation and task-driven workflows to simplify complex processes, track progress and proactively manage portfolios. This helps users more easily execute and manage their strategies, from acquisition through renovation, listing, management, and disposition in the following ways:
» Customized rental management workflows can help manage specific scenarios for property maintenance.
» Track KPIs to monitor property performance and manage expectations.
» Execute your disposition strategy for properties that are underperforming or in higher risk markets.
Onboarding and learning new technology can understandably feel like a daunting exercise. However, adopting a new technology solution may provide the competitive advantage savvy SFR investors are looking for as the market becomes more complex. Working with a provider like homegenius Real Estate that has invested in the latest advancements in automation, machine learning, and data science can help you take a proactive approach based on real-time micro-market data.
While others are choosing to “wait and see” how the market performs, you can get ahead of them by optimizing your strategy now.
Ultimately, nimble technology is a critical investment for SFR investors and asset managers to successfully navigate the market slowdown.
