In his State of the Union address, Barack Obama crowed about a buoyant and recovering economy. And whether you love him or hate him, the data seems to agree that economic conditions are definitely improving. The unemployment rate is falling and, although incomes have not yet begun to rise, many analysts believe 2015 is the year when many Americans will get raises.
All of this is great news for anyone looking to get into real estate investing.
New Jobs and Housing Starts
There are a few reasons why low unemployment is good for real estate, but the biggest is that more jobs translate to more demand for housing. When more people have jobs, more young people are ready to move out. Older people who ended up on hard times after the financial crash are also getting work, meaning they won’t need to rely on their families as much and can find their own places to live. Young families will be seeking new homes, and families expecting more kids will be seeking upgrades.
All of this is reflected in one economic metric: new housing starts.
Housing starts are tracked by the U.S. Census Bureau, which is tasked with tracking how many people are planning to buy or rent properties. The Census Bureau also takes a look at how many developers are building new residential properties throughout the country. They release monthly reports on each figure.
In late January 2015, the Census Bureau announced that over 1 million building permits were authorized at a seasonally adjusted rate in December of last year. That’s a 1% increase from the same period a year prior.
Housing starts, which measure the total number of new houses that developers are beginning to build, are also up strongly on healthy demand. The Census Bureau reported a huge 5.3% year-over-year increase in total housing starts and a 4.4% monthly growth. The biggest growth was in single family homes. A total of 728,000 new homes were beginning to be built in December.
Higher Confidence and Home Values
This robust activity is clearly good for home builders because it means there is more inventory to sell and more revenue to get. But the growth in home buying activity has other, more subtle effects that are also benefitting investors.
With so much growth in the real estate space, there is more and more confidence in the economy about home prices going up. This is significant. Back in 2008, many were horrified to realize that, in fact, home prices can sometimes go down. That left pessimism in the market for years and that pessimism has been tough to beat. In fact, it’s been a black cloud over the real estate market for half a decade. But with more homes on the market, that pessimism is vanishing.
This has caused home prices to continue to rise, again helping investors and developers grow more confident about building more and meeting demand. Already in November, home prices rose more than expected, with a 5.3% increase in prices on a year-over-year basis. The trend is clear: more demand is making higher prices.
How to Finance a Real Estate Investment
With so much confidence in the market from home developers and more people interested in purchasing real estate, the time to invest in the market and provide the supply so many buyers are seeking is helping more developers secure financing from large banks and traditional lenders. But what if you’re a developer and the large banks have turned you down?
Specialist real estate lenders are helping the market with their unique perspective and expertise on the trends that will drive real estate prices higher. Socotra Capital is serving the needs of real estate investors in California with their unique insights into the region and their experience with real estate loans both large and small. A hard money loan from Socotra Capital can help you get your real estate development project underway in no time.
Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help.