Understanding The Need for Investor Activity Reports
In the United States, every property owner can (and should) be considered an investor. Real estate investing is a commonsense economic activity. According to the Bureau of Economic Research at the St. Louis Federal Reserve, the American rate of homeownership in the fourth quarter of 2021 stood at 65.5%. That number is widely projected to return to the levels seen in 2004, when that rate surpassed 69%.
When you transition from the idea of “homeowner” to “investor,” you want to understand the market forces in your local market as well as any economic trends. This information can help you make a better investment decision or help you avoid buying in a location that will not increase in value.
If you understand how the current market works, you can identify patterns that you may not have noticed before. It’s critical to remember that these markets will continue to evolve, and you should monitor them regularly. There are various things you can do to increase your investment returns and build wealth. Understanding market trends can help you understand why local investor activity influences property values. Let’s start with the macroeconomic factors that can make or break real estate markets for potential investors.
Regional Economies, Demographics, Interest Rates, and Government Intervention
The state of the regional economy can result in property markets becoming more or less attractive to investors. Taking a look at Wall Street is a good starting point, but this mostly refers to the national economy. Housing and stocks move in opposite directions during times of economic stress, but this does not affect the diverse economy of the United States. Other macroeconomic factors include job growth and unemployment rates. For example, Miami saw job growth of just over 5% at the beginning of 2022. You really want to drill down to regional economies such as metropolitan areas when evaluating your real estate investment options. For the purpose of this article, we will refer to the South Florida region during the first quarter of 2022 as an example because it presents various relevant topics.
Never overlook demographics because of the significant impact that major shifts can have on both residential and commercial real estate markets. In the case of South Florida, population growth has been strong over the last decade, but not as robust as in other regions such as Tampa Bay and Orlando. Still, the demographic increase is expected to keep housing demand high with about 37,000 households entering the market annually for the next five years. This could mean good news for investors and for homeowners looking to sell their property.
Interest rates are also significant and relate directly to economic factors. Taking out mortgage loans is the most traditional method of acquiring U.S. residential properties. In general, when interest rates are on the rise, you can expect housing demand to cool down. The opposite happens when rates are down because the costs associated with borrowing money become lower. This drives greater interest in real estate acquisitions. Higher interest rates do not necessarily result in a drastic suspension of housing demand. In certain cases, cash buyers swoop in to take advantage of the situation, thus heating up regional markets.
Whenever government agencies introduce programs designed to stimulate home buying, smart investors will pay close attention to the markets where these programs are being implemented. We are talking about subsidies, deferred interest loans, down payment assistance, and even cash grants in some cases. The city of Miami, for example, has managed a zero-percent deferred mortgage loan program with the support of the U.S. Department of Housing and Urban Development (HUD).
Socioeconomic Trends, Regional Business Development, and Geopolitics
Investor activity and local economic development plans can influence real estate markets. Investing trends tend to be more granular factors driving regional markets, and they are often tied to overall business development that includes job growth and other signs of economic activity.
Investor activity refers to the pivotal data generated by real estate transactions in specific markets. This is how you can determine your actual purchasing power, and it includes data such as comparable sales, resale activity, renovation costs, market rental rates, net yield, and the potential return on investment (ROI). In the past, this information was mostly gathered through public records managed by the county recorder’s office. These days, it needs to include new market intelligence sources such as Multiple Listing Services (MLS), Airbnb, and VRBO. This is what we call critical intelligence for the modern real estate investor.
As for socioeconomic trends and the climate of regional business development, these are factors that can have substantial effects on housing and commercial property markets. In late 2021, Miami Mayor Francis Suarez got involved in a Twitter conversation between cryptocurrency developers who pondered whether they should be leaving San Francisco and the Silicon Valley for the purpose of setting up shop elsewhere. This Twitter exchange resulted in starting a process that many industry analysts believe will turn South Florida into a major tech hub. Less than a year later, the home of the Miami Heat has been renamed FTX Arena for the cryptocurrency exchange, and local rents have skyrocketed to the benefit of local landlords.
Finally, geopolitics can also play a part in shaping American real estate markets, and property investors can not ignore them. Let’s consider the city of Sunny Isles Beach in northern Miami-Dade County, which is often referred to as “Little Moscow” because of the high concentration of property owners from Russia. Years ago, Russian buyers were attracted to this small housing market because of positive diplomatic relations between the Kremlin and the White House. Many of these buyers took advantage of a sluggish condo market to make cash purchases, which they eventually profited from by reselling or renting to other buyers who shared their ethnicity. In 2022, geopolitical tensions between the United States and Russia resulted in the freezing of the Sunny Isles Beach condo market. As of June 2022, it is still too early to tell how this situation will unfold and what effect it will have on that specific micro-housing market, but this is a situation for prospective investors to keep an eye on.
The Bottom Line of Real Estate Market Intelligence Reports
Investing strategies should involve more than just buying, selling, and holding. They should also be about optimizing your real estate strategy and choosing the most appropriate market conditions. The goal is to find the strategy that best fits your financial resources and investment objectives, and that is why you should also seek expert opinions.
Make sure to perform an in-depth analysis of the markets that interest you before choosing the appropriate investment options and strategies. We have mentioned only a few of the factors that can impact real estate markets; don’t think of them as the be-all and end-all of property investing. The relationships between these factors and real estate market activity will not always be clear unless you take the time to sort through the entire report. The goal should always be to choose the strategy and invest in the market that suits you, and not the other way around. For more information about our Market Reports and the real estate management and investment services we offer, contact our office today.