As with any type of investment vehicle, anyone who wants to
succeed in the realm of real estate investing needs to be a studious observer
of market trends. Tracking everything from unemployment, job creation,
population migration and economic stability, to housing inventory, home
prices and rental yields in any particular region is essential. Just like anyone else with goods and services to sell, the
most successful investors are ones who own the supply when the demand comes
calling. However, after the Great Recession hit, the next great wave of
first-time homebuyers, the millennials, did not come calling. Instead, they
were either attending college, or trying to start their careers fresh out of
college.
In a report released October 2014, entitled, “15 Economic
Facts About Millennials,” released by the White House, the President’s
Council of Economic Advisers or CEA, noted that the millennial generation,
which accounted for one-third of the U.S. population in 2013, will shape the
nation’s economy “for decades to come.” It should come as no surprise then,
that with the baby boomer generation heading toward retirement years, and possibly downsizing or moving into
retirement or assisted living communities, it would behoove real estate
investors to follow where the next generation of homebuyers and renters is
migrating to live, work and play.
A realtor study
highlighted millennial migration patterns. This July, the National
Association of Realtors, or NAR, released a report entitled, “Best
Purchase Markets for Millennial Homebuyers,” which took into account a lot of
variables that can affect real estate investors when making a decision on where
to buy investment property.
According to the NAR report, homebuying among young adults
under age 35 peaked in 2005, at 43 percent, before declining to 36 percent in
the first quarter of 2014. In conducting the study, NAR looked at a number of factors,
such as the local employment situation, the inventory of homes, the migration
patterns of millennials (where they are moving to) and the affordability of
homes in those areas.
Out of the top 100 metropolitan areas analyzed by NAR, 10
markets stood out as projected to gain or to witness an increase in millennial
homebuying in the upcoming year. Some of metropolitan areas are Austin, TX,
Dallas, Denver, Des Moines, Iowa. Looking at recent trends, 2014 will be the low point in
homebuying activity, with a pickup expected in 2015, although not back to
normal levels.
The investor’s
perspective. Similar to the realtors, the most important metric for real estate investors when it comes to determining where to own property – is
where the millennials are moving to, says Daren Blomquist, vice president of
RealtyTrac. However, in conducting its "Q2 Residential Property Rental
Report," RealtyTrac examined down to the county level, rather than the
metropolitan areas, like the NAR report. Still, when considering the factors
that go into determining the best places for investors to buy rental property,
many of the same factors were considered, such as migration patterns and
employment rates, although the RealtyTrac report factored in the level of
rental yield available in a particular market as well.
In all, 370 counties were examined nationwide, accounting
for 60 percent of the U.S. population. To make the top 50, the county had to
have at least 24 percent of total population in the millennial age range, and
at least a 10 percent increase in the number of millennials between 2007 and
2013.
Employment rates were added into the mix, along with median
home prices, and had to have an annual average gross rent of 9 percent or
higher. The survey found investors buying residential property in the second
quarter of 2014 were garnering an average annual return of 9.97 percent, down
from a 10.60 percent return a year earlier. As a result, the report named the following counties as the
best markets to buy rental property, as of the second quarter of the year. Some include
Anderson County, South Carolina, Woodbury County, Iowa, Pickens County, South
Carolina, Alachua County, Florida.
The case for an investor driven recovery is based on a new metric RealtyTrac has been studying,
which calculates the percentage of non-owner occupants. Based on data collected
by RealtyTrac, the percentage of non-owner occupants is 30 percent of sales so
far in 2014, the highest it’s been since the firm began tracking the data in
2001. If there is a downside, it is that next year interest rates are expected
to rise by 1 percent to 5 percent. Although higher interest rates are always a
deterrent to buying, one percent rise will not cause potential homebuyers to
panic.
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