Although the housing collapse of 2008 took a chunk out of the real estate market, the truth is that Americans had been buying fewer and fewer single-family homes since 2006. As a consequence of the supply-and-demand, this state of affairs doesn’t seem all that good at first glance; but in fact, it represents a dazzling opportunity for institutional investors.
Profiting from Real Estate in Down Times
When one looks deeper, it turns out that although home ownership will continue to drop through the year 2018, single-family homes still represent an investment opportunity. This is because families are simply not buying, but are instead renting. Consequently, this also makes getting into the multifamily home sphere somewhat inadvisable.
Savvy institutional investor can treat this situation similarly to how investors manage during the housing prices: go house hunting for rental acquisitions scattered around the country. These properties tend to have a lot of room to grow insofar as pricing is concerned. Even though the building of new single-family homes is quite expensive in the current market, it may be worth it for the institutional investor to scoop up as many as he can.
Why Home Ownership Has Decreased
One of the root causes of the downturn in home ownership is the bevy of mortgage requirements that resulted from the housing collapse. This is combined with the fact that most of the governmental incentives that formerly accompanied home ownership have tanked. Jim Costello of Real Capital Analytics (an analytics and data firm out of New York) says that the data shows the lack of government subsidies is the biggest influence in shifting ownership to rental in the current era. These are some of the things that post 2008 prospective homeowners largely lost out on:
- Subsidized home loans for veterans
- Free area parking for homeowners
- Government-sponsored enterprise loans
- Tax deductions on mortgage interest rates
- Subsidized new transit on the interstate
Basically, it wasn’t only the banks that became very conservative in their lending practices – the federal government also put the clamps on. As a result, only the very highest credit scores can access the currently tight-fisted lending environment.
There’s another reason for the general malaise when it comes to buying. According to CBRE Econometric Advisors economist Matt Vance, some of the downturn also has to do with social changes. For example, people usually make a major purchase such as a house after getting married; but most people these days are delaying that decision – by not getting married at all. As a result, more people are choosing to rent rather than buy.
Single-Family Homes: The Environment for Investors
Despite all of this, MorningStar released a July 2016 report showing that the rent for single-family homes rose 5.4% – and has been doing this year after year. There are virtually no vacancies across the board; after all, people have to live somewhere. Guarav Singhania of Morningstar Credit Ratings even expects issuance of new single-family rental units to increase as the year moves forward. The market for single-family rentals isn’t going anywhere soon, and an institutional investor can capitalize from this trend.
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