If you have turned on the news anytime in the past year, it is likely you are aware of the rising prices in real estate. There are 2 factors (among many) that are contributing to the “hot” real estate market including a pre-Covid-19 low housing supply in addition to a shift to a hybrid and/or remote work setting. In short, what our country has witnessed in regard to the real estate market comes down to a depleted supply versus incredible demand.
There are two sides to this equation. First, from the buyer’s perspective, without going above and beyond the asking price and/or willingness and ability to put a large amount of money down, there is a good chance you’ve found yourself outbid. Up until the recent months in which demand is beginning to lessen, potential home buyers have been in bidding wars to move into their next home, whether that was due to a job change, financial circumstances, or general FOMO related to the real estate market. On the other side, it has clearly been a seller’s market recently. Home sellers have been able to capitalize on above-asking-price offers due to pent-up demand. With that said, the big question remains: When will the housing market return to normal levels of supply and demand, and what changes to the housing market will help facilitate that change?
The answer may lie in the rental sector. Real estate and home lessors may currently be in the most lucrative investment sector as it stands today. Large firms have taken notice of the unwillingness in people to pay absurd amounts for homes while being more interested in renting while home prices remain high. KKR & Co, Blackstone Group, and American Homes 4 Rent are a few of the big name players leading the charge in acquiring land and property. According to the securities advisory Green Street, “The expected risk-adjusted annual return for built-to-rent investments in the private market is now about 8% on average” (Parker). Firms are rushing to developing areas, such as Texas, where businesses are expanding their operations and consequently leading to more demand for rental units.
It seems as though the housing market is beginning to cool as more people are finding they are better off renting while home prices are high. Week in and week out, the housing market continues to be a hot topic in our country as changes in the work environment and business development are leading to lifestyle changes and relocation of residences. It will be interesting to see how the profitability of rental property investments may or may not change as the housing market cools. As Wayne Gretzky once said, “I skate to where the puck is going, not where it has been.” For the time being, investments in rental properties seems to be “where the puck is going”.
Parker, Will. “Building and Renting Single-Family Homes Is Top-Performing Investment.” The Wall Street Journal, Dow Jones & Company, 9 Nov. 2021, https://www.wsj.com/articles/building-and-renting-single-family-homes-is-top-performing-investment-11636453800.