Market Insights: 2019
This is the second in a series of blog posts laced with insight from the 2019 Best Ever Real Estate conference in Denver, Colorado.
Today, we address the big question on everyone’s mind: “What do you think the market will do this year?”
If you check out a podcast or interview with a bonafide real estate ‘expert,’ listen closely to their answer when they are asked that question: “What do you think the market will do this year?”
Most times, they will offer an opening disclaimer that sounds something like: “I don’t have a crystal ball, but… [insert opinion].”
Here is your disclaimer for this blog post: If you are seeking hard predictions about what the market will do this year, or the next 3-5 years, this is not the blog post for you. The primary audience for this post are passive investors - new and experienced. Those who are wrestling with questions like:
When should I invest in real estate?
Why should I invest in real estate?
If I invest in real estate, how much of my portfolio should I allocate to it?
To understand “the market,” as it relates to real estate investing… you’ll want to understand 2019 demographics, in a basic sense.
Example: The 2019 US population of 'young adults' is 67.3 million. Why does this matter?
It matters because the trends and behaviors of these young adults are the cornerstone of the economic outlook for the US in 2019 (according to Marcus and Millichap research)
Insight: Millenial’s have postponed the traditional ‘life milestones’
Result: Pent-up housing demand, based on the size of demographic group.
Millenials are waiting longer to get married, start families and purchase their first homes.
The average age of these “millennial milestones” are:
First home purchase: 32.0
In recent decades, the historical average of young adults living with parents totaled roughly 19M in the US. Now, that number is currently sitting closer to 23M. There are more than 4M young adults living in their parents basement, above the historical average. Another way to think about this is that there is strong pent up demand for housing.
Some will buy. Some will rent. As of 2017, the millennial propensity to rent is 66%. We are a ‘nation of renters’ and there is ample supply of them for years to come.
Insight: Millennial movement, nationally is leaning South and West
Result: States like Colorado Texas, Utah, Tennessee… these are looking more attractive to young adults.
In these states, cities like Salt Lake City, Dallas/Fort Forth, Austin, Houston, Nashville have seen more than 8% growth in millenial population over the past 5 years
Compare that to declines in the same group that we’ve seen in cities like Los Angeles, San Diego, New York, Philedelphia, Chicago
Some real estate experts claim that these Millennials absolutely love and require amenities that you typically see with modern apartment communities. Meaning, that… if these young adults are presented with two options, they will go for the apartment-renting lifestyle.
Single family home ownership vs. apartment renting w/ great amenities
The data is showing is more of a blend. Granted, data as of 2017 shows that the propensity to rent vs. buy was 66%. What is unclear though, is how much of that propensity is based on financial readiness to put a down payment down. Said more simply: we all speak more favorable of things we are confident and capable of doing, vs. things that intimidate us or we can’t participate in, right?
So what are the takeaways? The takeaways are the following:
Local, not national: Market dynamics play out on a local level, not a national level
Coastal exodus: Coastal markets seeing are seeing slowdown and decline in population growth for Millenials, as they are getting priced out of cities and want a more flexible lifestyle and strong financial footing
Delayed milestones = more millenials bolstering some markets: Young adults have delayed major life milestones, due to factors both inside and outside their control…. And as a result, a massive group of them is trending to evolve into the full “adulting” stage, in the coming next couple years
So, in the markets where those young adults are increasing in population… the forecast for multifamily housing is more confident in 2019 than some analysts were expecting, back in 2017 and 2018
Does that mean a ‘correction’ or ‘downturn’ or ‘recession’ is coming? Again, no one has a crystal ball; however, we are seeing some major markets soften.
2019 Investor Tips
If you are an investor in 2019, here are three things to consider:
Investor track record matters - if you deploy capital, we recommend you do so with experienced operators
Bet on proven playbooks - if you have found that right operator to invest with, pressure test their approach. Find out if they are run their playbook before. If you are investing as ‘the guinea pig’... this may not be the best market conditions. Then again, that’s your capital and your call
Invest for cashflow, not appreciation - if you are investing for appreciation, this the right time to sit on the sidelines. Most of the appreciation available out there has been gobbled up already. If you invest in a property in California right now because “the bay area always goes up” you are in for a world of hurt for the next chunk of a decade. Will it go up? I think it will, on a time scale of 15+ years.
If you invest for cashflow, there are opportunities to be had… if you partner correctly and invest selectively
Investments are vetted through three lenses - operator, market and the deal. Keep that in mind as you step forward in your journey to financial freedom. Passive income is your path to get there.
Reach out to us at Madison Investing and we’d be happy help you work through open questions.
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Under no circumstances should any material at this site be used or considered as an offer to sell or a solicitation of any offer to buy an interest in any investment. Any such offer or solicitation will be made only by means of the Confidential Private Offering Memorandum relating to the particular investment. Access to information about the investments are limited to investors who either qualify as accredited investors within the meaning of the Securities Act of 1933, as amended, or those investors who generally are sophisticated in financial matters, such that they are capable of evaluating the merits and risks of prospective investments.
Disclaimer: This article is intended for educational purposes only and does not constitute investment advice. You should always contact a registered financial professional before acting on this, or any advice. I am not a tax advisor or financial planner. This article represents my opinions.