Schaad Companies Offers Investor Insights for Residential Real Estate

Since its onset, COVID has upended the way we live and work. Even as the U.S. has adjusted to this new normal, the pandemic will likely have a long-term effect on all segments of the real estate market. Here are some considerations investors should keep in mind for residential investments.

Unaffordable housing prices.

Homes are likely going to become unaffordable for the average American, especially for first-time homebuyers. There are numerous factors that are driving this spike in home prices. First and foremost is the lack of supply. Builders simply cannot keep up with inventory demands. As supply chain issues, the high cost of building materials, and constructions labor shortages persist, production rate are unlikely to increase. Price appreciation will remain steady, albeit slower than in 2021.

High demand for starter homes.

Starter homes will remain a highly competitive market as millennials, currently the largest American generation, look to buy their first homes. House flippers who target starter homes will have to weigh demand, an increase in mortgage rates, and the viability and profitability of renting flipped properties versus selling them.

A growing rental market.

Due to low inventory, high prices, and increasing mortgage rates, the rental market will continue to grow. Demand for multi-family rental properties will likely persist, as single-family home rentals will remain highly competitive.

Technology’s impact on asset value.

Technology has revolutionized essentially every facet of our lives, and our homes are no exception. Investors should keep an eye on the growing popularity of smart home technology, particularly as it impacts asset value. Smart home technology can improve homes’ security and energy efficiency, and the National Association of Home Builders reports that this technology can increase property values by 3 to 5%.

Population shifts.

With more flexible work options, many Americans have moved to areas that have a lower cost of living. Suburban areas in particular have experiences a population influx. Smaller cities like Knoxville have seen huge increases in real estate demand as people from areas like the West Coast relocate to take advantage of lower regional housing prices. Investors should keep their eyes on regions like the Mountain West and Midwest as well, where local economies are strong and where inventory is more varied and accessible than in large metropolitan areas.

The housing market has been all over the place in the past couple of years. Recent trends will likely slow; however, investors will continue to feel the impact of the pandemic on the market for quite some time.