It’s no secret that real estate prices have been on the rise, and it appears that trend will continue into 2022. When coupled with an undersupplied market, the result is fierce competition. For real estate investors, this means you must sharpen your keen eye for a good deal and have quick access to cash to stay competitive.
Rising Real Estate Prices
Home prices increased more than 21% in the past year, representing record growth that is expected to slow in the next year. Many factors are contributing to the increase in home prices, including:
- Low interest rates
- Inflation
- A shortage in housing supply
- Millennials entering the market
Although the rising price trend is nationwide, growth has not been at the same rate in every region. Local supply and demand is one of the key indicators of how a market will perform. Large metro areas are bearing the brunt of the housing shortage, which is why prices have skyrocketed in the largest cities in the country. However, the shortage does not apply to all areas, particularly the Southeast and Sun Belt. If you are looking to build your portfolio and don’t want to wait until home prices drop in areas with limited supply, consider expanding your search geographically.
An Undersupplied Residential Real Estate Market
For the last four decades, the housing supply has not kept pace with the growing population and other regional factors, including a shortage of land and local zoning restrictions. In the past couple of years, supply chain issues have had a major impact on new construction and the speed at which new homes are built, escalating the issue that had already been growing. This also contributes to higher prices because of the combination of high demand and low supply.
One factor that might impact home prices in a favorable way for investors is the number of homes in foreclosure that could potentially come on the market in the future. If enough homeowners choose to sell to get out of foreclosure, it would increase the housing supply and potentially result in lowered home prices. However, more properties on the market does not necessarily solve the overall housing crisis because sellers still need to move elsewhere.
The Impact on Real Estate Investing
Rising real estate prices don’t necessarily have to put you out of the investment game, but you may need to alter your approach.
Diversify into other real estate types.
Most experts agree that prices will continue to go up in 2022 but not at the same rate as the past year. If you have been biding your time to see how the market settles, 2022 could be the year that prices stabilize, but with interest rates not expected to increase until late in the year, real estate prices will likely continue to go up. Given this, real estate investors might look to commercial properties and wait until the residential market settles. Multifamily homes with at least four units are also an investment opportunity in this tight single-family residential market.
Diversify into other areas.
The markets that continue to be undersupplied likely won’t see a decrease in prices in the near future. Look to invest in states such as Nevada, Texas, Georgia, North Carolina, and Arkansas that have sufficient housing supply for more favorable prices.
Consider a new approach.
With the housing shortage not expected to be resolved for the next 5-10 years, one investment approach to consider is fix-and-flips. By purchasing homes that need cosmetic improvements that others might not be willing to take on, you can make a profit on your investment. However, the fix-and-flip market is also facing fierce competition these days because homebuyers that would not normally purchase fixer-uppers have more limited options. With baby boomers retiring and downsizing, there might be a good opportunity to purchase homes that need updating before going back on the market.
Stay Competitive with Socotra Capital
No matter what type of property you intend to buy, you need to be prepared to act fast. Be prepared to make a same-day offer when you need to jump on an opportunity. Socotra Capital can help you do this with quick approvals and closing in less than a week. When selecting a buyer, sellers take many factors into consideration, and speed is often at the top of the list. Whether you’re a seasoned investor or looking to start generating passive income through real estate, our team is here to help. Check out our e-book, How to Grow a Passive Income Portfolio in Today's Market for more ideas.
