Real Estate’s Financial Opportunity
Investment opportunities will continue to grow.
Perhaps better than any other group, America’s Realtors understand how property ownership has the potential to change lives and enhance futures for individuals from every background and in every corner of this country.
Homeowners volunteer, serve on community boards and vote in local elections at a higher rate than the general population. And studies have shown that the children of homeowners perform better in school and go on to earn more money as adults than the children of non-homeowners.
In addition to these tangible societal and socioeconomic benefits, real estate presents a tremendous financial opportunity for investors and potential investors—no matter the resources or expertise they possess.
Housing’s Impact on the U.S. Economy
Home sales support more than 2.5 million private-sector jobs in this country in an average year. Few, if any, industries are more important to America’s economic engine than this. And as our economy continues to perform, there is profit potential for investors in nearly every U.S. market.
Figures from October show that the U.S. economy continues to create about 2 million jobs per year, while the 3.6% unemployment rate is approaching historic lows and wages are growing faster than inflation. One of the most promising indicators that this strength is sustainable is data showing the number of job openings (7 million) outpacing current job seekers (5.9 million).
National Association of Realtors’ Chief Economist Lawrence Yun has echoed this belief, stressing his optimism at the 2019 Realtors Conference and Expo in San Francisco in December 2019.
“Because of healthy consumer activity and job creation in every state, I do not foresee a recession in 2020,” Yun said, noting that current conditions are better than they were before previous U.S. recessions.
“The outlook for our economic climate becomes particularly strong when considering housing demand and low interest rates, which have boosted the economy and residential and commercial activity,” he added.
The overall outlook surrounding interest rates should indeed project confidence to investors and property owners alike, as Yun refers to persistent low mortgage rates as our economy’s “magic bullet.” With 30-year fixed-mortgage rates expected to hover around 4% next year, the average homeowner could shave around $100 a month—or more—off their mortgage, amounting to tens of thousands of dollars in savings over the life of a loan.
For property owners, potential investors and prospective homebuyers, all these positive economic trends signal a market that is able to withstand inventory shortages and considerable price appreciation many U.S. markets have recently witnessed.
Shifting Domestic Demographics
As our economy moves forward, so too will our housing market. And as our housing market strengthens, so too will our economy.
This is a cycle that, while not without risks, presents tremendous opportunity for those currently mulling the prospect of homeownership or property investment. Factor in added demand as millennials age and pay off student debt while baby boomers begin to downsize, and a formula exists to suggest the sustainable, long-term vitality of America’s housing market—even though additional new home construction would certainly be a welcome sight.
And, make no mistake, these demographic trends matter. Among households with heads aged 25 to 64, the largest group is those headed by 25- to 34-year-olds (46.2 million). This group includes millennials (born 1982-2000), the youngest of whom will be 30 years old by 2030. The 35-to-44 age group, Generation X, comprises another 41.8 million households. As these individuals grow older, marry and form their own households, many will begin seeking out a home to match their evolving lives.
In a recent national study, eight of 10 millennials said owning a home is part of their American dream, and that they hope to do so in the future. The reality, however, is that student loan debt continues to burden a significant portion of this population. The typical millennial can expect to wait seven years before the dream of homeownership can become a reality. And when it comes time to buy, those with student debt purchase homes worth 19% less than buyers with identical incomes, even when controlling for region and square feet.
As this problem persists, NAR continues to advocate for policies designed to increase housing supply and maximize affordability, including allowing higher density in single-family zoned areas; easing minimum parking regulations that may be outdated due to the rise of ride share apps and the expansion of public transportation; and promoting cost and time-efficiencies from modular, panelized or manufactured housing.
Transforming Commerce Transforms Investment
Outside of the residential space, the explosion of e-commerce continues to drive the demand for industrial warehouses and flex office space. Consider Amazon’s one-day delivery model and Walmart’s intention to develop its own competing system. Quick and efficient delivery means more warehouse distribution centers. And because retailing is population driven, areas with strong population growth are likely to see increasing demand for industrial office space.
With this, the South and Midwest regions emerge as particularly attractive industrial real estate investment destinations, thanks largely to increasing domestic migration and property values that remain relatively affordable. Metro areas with cost-effective industrial rents coupled with strong in-migration are Atlanta, Dallas, Houston, Minneapolis and Washington, D.C.
Finally, the multifamily market is arguably the most attractive commercial property class. Rental vacancy rates are currently very tight in many metro areas, indicative of the demand for rental housing. National rental vacancy rates sit at 7%, but these figures are substantially lower in major metropolitan markets like Boston, Denver, Los Angeles, Dallas, Chicago and Phoenix. All across the country, America’s 1.4 million Realtors are engaged with private partners, housing industry trade groups and lawmakers to raise awareness about the challenges facing homebuyers and to promote solutions that address critical national housing needs. As our focus on ensuring the American dream remains a reality for people from all background and all walks of life, investment opportunities will continue to grow. And that development will only benefit property owners, homebuyers and our economy moving forward.
