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Real Estate Investments: Where is the Market Going?

August 31, 2022

Real estate investment is starting to slow as individual investors have shifted their attention to protecting their retirements and have started to pull back on large purchases and investments, according to a survey from UBS. This survey goes out to 2800 investors and 1100 business owners in 14 global markets.

Home Buying Demand

The push had been to buy up a lot of homes with the expectation that demand would continue. There remains a shortage of over 5 million homes and the US only builds about 1.5 million per year. It seemed a good bet that prices would keep rising even as mortgage rates rose. The question is where the tipping point might be. The first-time buyer is already largely priced out as they can’t rely on low mortgage rates. Mortgage rates have nearly doubled and many expect them to continue rising as the Fed raises rates.

There had been some expectation of a Fed “pivot” sooner than later. The prevailing wisdom was that rate hikes and the impact of inflation itself would have started to slow the economy by this point. That is the way it is expected to work after all. The problem is that many other indicators point to an economy that remains robust. The fact that there has been two quarters of negative GDP growth has been offset to a degree by very robust job growth. An imminent recession is not consistent with the addition of over 500,000 new jobs and an unemployment rate of 3.5%. The assertion was that the Fed would reverse the rate hikes when and if the economy started to show signs of faltering. The problem is that there has been no sign of that decline as yet. Instead, there seems to be room for the Fed to keep raising rates – perhaps by another .75%.

Real Estate Investment Trends

Within the overall real estate investment sector there are two trends that have started to emerge. There has been renewed interest in the “inner ring” suburbs that members of the Boomer generation moved out of. The new buyer has been priced out of the more distant suburbs and this is the generation that worries about transportation costs. They have started to look at the older neighborhoods where home prices are still reasonable even with the understanding that significant renovation work will be required.

A second trend has faded a little since the end of the pandemic restrictions and the arrival of more expensive fuel but it still motivates investment on the residential side. People are moving to smaller towns and communities. These are still generally within 50 to 100 miles of a larger urban area but if the community can offer amenities such as broadband access, decent education, and local entertainment the draw remains. There has been some commercial interest in these communities as well with the focus on transportation, labor access, and a favorable tax and regulatory environment.

MarksNelson is on the pulse of the latest trends in real estate investment. Our experts go beyond the numbers to provide a holistic view of your situation and support your needs in each aspect of the project life cycle. We’re here to help.