It’s no secret that 2020 has been one heck of a year. For most investors, there’s an element of uncertainty that’s hanging in the air. What’s happening next year? What’s going on moving forward? How do I know where to put my money? And of course, should I buy –or sell?
With so many uncertainties, it’s good to take a look at the facts –what we know and where we’ve been, to see what might be ahead. While these are uncertain times economically, there’s a lot to be optimistic about as we move into the New Year. Housing still represents a solid investment, and while returns vary considerably from market to market, many areas are experiencing strong demand and interest from buyers –and renters alike.
With 2021 just around the corner, let’s take a quick peek at what’s happening now, and see what may be in store for the upcoming months ahead.
Lack of Inventory in Some Markets
Despite looming economic uncertainty, homebuyers are moving fast to buy up homes that are available. This boom is contributing to a shortage of housing in some markets, which once again proves that demand for housing –isn’t really going anywhere. Overall, according to Zillow, available inventory is down 7% from last month (November), representing the largest monthly drop since January. This is also 33.8% lower than it was at the same time in 2019.
In October, home sales rose to a 14-year high. November, which is traditionally a slow season for the housing market, was another busy month for transactions. Buyers and sellers both moved quickly which saw both listings and demand escalate.
Second Home Markets Are Booming
You might have thought that second home markets wouldn’t be doing that well –since many people might be unable to afford a second home right now. But a fascinating shift is taking place. More people than ever are working from home, which opens up new housing markets to a growing demographic: remote workers. These folks are looking for places that offer a good quality of life –with access to outdoor spaces. Even some cities are experiencing booms –Denver –for example, and Lake Tahoe and Salt Lake City in Utah –places in the mountains or near ski resorts; as well as coastal cities –Miami, for instance, or coastal California locations.
Buyers and Renters Are Looking for More Space
Buyers and renters alike are looking for more space. Stay at home orders have made many people realize that their space just isn’t big enough, there’s a demand for homes with more room. Suddenly having that extra bedroom –that could be used as an office, doesn’t seem like such a bad idea. There’s also renewed interest in accommodation that has outdoor space.
Mortgage Rates Go Lower Still
Mortgage rates are likely to stay low for the foreseeable future, which should continue to help encourage would-be homeowners to take the leap. Recently, experts had put them at around 3.2% for the rest of the year, but in recent weeks they’ve dipped even lower, reaching record lows of 2.99% as of Dec. 9 for a 30-year fixed-rate mortgage.
Home Price Growth Expected (But Rate of Increase Could Cool)
Most experts don’t believe there’s a crash on the horizon in 2021. Instead, the more likely scenario is that the pace of home-price growth that’s been overheated the last six months –largely fueled by pent-up demand, might begin to slow.
“Sellers will be in a good position in 2021,” states a report on Realtor.com. “Home prices will hit new highs, even though the pace of growth slows.”
In an October quarterly forecast, the economic research team at Freddie Mac stated that house price growth could moderate to 2.6% in 2021.
A Crash Seems Unlikely
There are a number of reasons most experts aren’t predicting a crash in 2021. Strong demand –that’s been artificially dampened temporarily by the pandemic and resulting government policies, coupled with low supply –and of course, low-interest rates are all helping to fuel the current demand for housing. Moving into 2021, we’re likely to see this pent-up demand continue to unfold resulting in steady home sales in many markets.
Finally, many people have lost their jobs in 2020. However, experts feel this is unlikely to impact the housing market significantly. This is because the people most impacted –those in the hospitality and services industry, were typically not earning enough to put them in the would-be homeowner bracket anyway. Instead, they were most likely to be renters.
Tips for Investing in 2021
Here are a few things you should consider if you are looking to invest in the upcoming year.
- Consider Casting a Wider Net
It’s true, many investors start out investing close to home. But there are a number of reasons to consider casting a wider net in 2021. Being open to the idea of long-distance investing opens up a number of markets for you –rather than limiting you to what’s available in your own home town. This will allow you to find a market that’s performing well, and a property that will generate decent returns.
- Give Yourself Options
Next up, if you’re planning to invest in fix-and-flip properties, it doesn’t hurt to have options that can help to lower your risk. That fixer-upper that you purchased with plans to flip, might end up being better off as a rental. Giving yourself a backup option, and looking to purchase a value-add property that will also perform well as a rental can save you from being caught out should the local market experience a temporary downturn. You can always rent the property out in the interim, until housing prices recover, allowing you to generate cash flow while you wait.
You’ll also want to look for signs of a healthy or emerging market. Here are some factors to consider when assessing a potential market to invest in:
- Sales of existing homes
- Home prices and appreciation
- New construction
- Population changes
- Unemployment rates
- The local economy and job growth
- Median household income
- Affordability
See also: Why SFR Offers Long-Term Stability
Tip: if you’re looking for an emerging market then you need market data. Head over to the Renters Warehouse Research Center to see population changes, unemployment rates, housing appreciation, and more for any housing market –nationwide.
- Consider Build to Rent (BTR) Properties
Single-family rental properties have come a long way in recent years. Today, it’s easier than ever to purchase, and manage, these properties even at-scale –thanks to the wealth of resources that are available that can make your job easier. If you’re planning to invest in multiple SFR properties, then build to rent could be the best way to go. These investments are essentially newly constructed tract housing that’s purpose-built as rentals. Since they’re new, they’re less likely to require extensive maintenance and costly repairs. Many investors are flocking to these properties as they’re easy to acquire in bulk, and simple to manage too. Plus, these properties are experiencing extremely high tenant demand. Often, these homes are built in among owner-occupied properties, which means tenants and homeowners can enjoy the same amenities and features –and something that helps these properties to maintain their value.
See why investors are flocking to BTR.
- Run the Numbers Each and Every Time
Finally, as is the case every year, don’t invest in an area simply because the experts say it’s a good thing to do. Their advice is a good starting place, but you’ll still want to make sure you carefully evaluate the viability of the local market yourself and then run the numbers to ensure the property you’re thinking of investing in checks out well as an investment and will generate the returns that you’re looking for.
See: Numbers you should be running on every single rental property.
Hot Rental Markets 2021
According to Emerging Trends in Real Estate®: US and Canada by PwC, the top ten housing markets for 2021 are:
- Raleigh/Durham, NC
- Austin, TX
- Nashville, TN
- Dallas/Fort Worth, TX
- Charlotte, NC
- Tampa/St. Petersburg, FL
- Salt Lake City, UT
- Washington D.C./North VA
- Boston, MA
- Long Island, NY
- Raleigh/Durham, NC
Not surprisingly, Raleigh, NC is ranking near the top for real estate investors. This city has experienced population growth, and the market is affordable, inviting for both first-time homebuyers and investors. Charlotte, NC has also made the list and is another location that has seen an increase in population.
- Austin, TX
With a relatively high renter population, Austin enjoys high occupancy rates. The Austin housing market is experiencing a boom, with property in demand with homes continuing to appreciate. Austin also has a diverse economy, which has helped it to remain relatively stable. Dallas/Fort Worth, Texas also made the list.
- Nashville, TN
Nashville continues to experience population growth. Nashville has already begun to recover from unemployment factors that most states had earlier in the year and has a strong rental demand hosts a lot of young workers, eager for rentals and work.
- Tampa/St. Petersburg, Fla.
With a good rental market and high renter population, Tampa is another popular location for investors.
- Salt Lake City, UT
Salt Lake City has made the list for 2021. Serving as an escape for those fleeing city living, it boasts extremely low unemployment rates.
- Washington D.C./Boston, MA/ Long Island, NY
Finally, we have three remaining major metropolises on the list: Washington D.C., Boston, and Long Island. These are three that the PwC report classified under the category, “The Establishment.” These are areas that have been sky high for a while now –and may be out of budget for many investors.
Of course, the above markets may be a bit too hot for some investors. Especially if you’re just getting started, you may want to look instead at emerging markets –places that are off the beaten path so they’re more affordable, but still offer great rental prospects and often, excellent returns.
Markets to Watch for 2021
With this in mind, here’s a look at some emerging markets for investors to consider for 2021. These are places where you can generate decent cash flow and look for a property that will offer a good return on your investment.
- Huntsville, Alabama
Average home price: $113,400
Average monthly rent: $1,100
- Houston, Texas
Average home price: $150,000
Average monthly rent: $1,400
- Cleveland, Ohio
Average home price: $105,000
Average monthly rent: $1,100
- Cincinnati, Ohio
Average home price: $128,500
Average monthly rent: $1,050
- Chicago, Illinois
Average home price: $128,000
Average monthly rent: $1,450
- Indianapolis, Indiana
Average home price: $135,000
Average monthly rent: $1,275
- Detroit, Michigan
Average home price: $87,000
Average monthly rent: $1,000
- Atlanta, Georgia
Average home price: $158,000
Average monthly rent: $1,500
- Columbus, Ohio
Average home price: $105,000
Average monthly rent: $1,100
- Albuquerque, New Mexico
Average home price: $140,000
Average monthly rent: $1,250
- Birmingham, Alabama
Average home price: $116,600
Average monthly rent: $1,170
Rental property can offer excellent returns. Do your research, run the numbers, and of course –assess the market carefully to ensure that you’re investing in a property that will generate cash flow, or is likely to experience appreciation.
So is now a good time to invest? To buy? To Sell? It depends! On the market in question –and your long-term investing goals. Some experts are advising that would-by buyers hold tight until next year when more housing inventory could open up. Others recommend buying in as soon as possible since prices could very well be higher still in 2021.
Remember: one of the great things about rental property investments is that you don’t need to worry as much about timing the market absolutely perfectly. Even if you do buy just before there’s a dip in housing prices, when you’re in it for the long-term, your success is far less dependent on what happens in the short term.
What do you see in store for housing in 2021? Share your thoughts and predictions with us in the comments. And if you’re looking to invest, be sure to check out our Investment Marketplace to find investment properties for sale in markets across the states.
Disclaimer: This article is intended to inform and to educate. All predictions should be considered as speculation, and are designed to point investors in the right direction. Always conduct your own due diligence before investing.
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