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Real Estate Wealth often lies in the Driving Trends | International Residential Real Estate Investors Association
Tuesday January 23rd 2018

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Real Estate Wealth often lies in the Driving Trends

Growing up in rural Oklahoma I overheard my peers state frequently, “I don’t need to learn this in school.  I’m going to be a farmer.”  At the same time, I’d watch my dad read the market news and watch the commodity reports every day.   Now and then, a semi trailer pulled into the farm unloading tons of grain.  One day, I asked, “why do you buy grain this way?”  My dad’s answer was the commodity markets say grain is going to become much more expensive and the time to buy had come.   Over the years, this attention to market trends paid large dividends over his less informed neighbors.  As real estate investors, we can mitigate risk and make big gains in the same way.

Historically, if you had decided  to begin building luxury homes in 1993, you would have realized an almost unbroken chain of significant gains from that point until 2005.  Whether you achieved this  through brilliance or luck depends mainly on whether you did this because you knew baby boomers would enter their peak home buying years as defined by  average size of home demanded and their age or you simply the  luxury market would never fail.   Additionally, you could have predicted that demand would begin to fall precipitously at the end of the period in the same way.  One can argue that while the structural underlying issues that caused the crisis were very real, that perhaps the end of the period of babyboom driven housing growth is the true underlying cause to the crash.

The fact is that while real estate is always a very local decision understanding economic and demographic trends can reduce risk, assure performance, and lock in value growth  for  well informed investors.

Today, investors should be paying attention to a number of macro trends in the United States.  Some of the ones I believe may prove most important include:

  • 72% of projected household growth for the next decade will have minority heads of household.
  • 36% of projected households will be Hispanic.
  • U.S. households are saving at substantially greater levels than they have for the last 20 years.
  • U.S. households are only considering buying if they expect to live in the same location for 10 years a 2 year increase over years past.
  • Down payment requirements for home purchases are increasing.
  • Credit score requirements for home purchases are increasing.
  • 77% of echo boomers prefer urban living.
  • 50% of new households for the next decade will rent.
  • Between 2008 and 2010, average new home square footage decreased almost 10%.
  • Much higher percentages of home hunters are comparing rent to buy before making a buy decision.
  • Households are including maintenance, upgrades, and principal payments in their purchase vs. rent decision where in the past these were largely ignored.

Having heard all these wonderful thoughts, you may be thinking, “So what!”.  Let’s consider some potential opportunities these facts offer.  Converting McMansions into multifamily dwellings could be one alternative.  Focusing on high quality urban locations is another as the assessment of some authorities is these locations will soon find demand outstrips supply with the resurgence of urban living.  In later, articles we will dig even further into these trends and the means to convert them into long term investing success.

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  1. http://bit.ly/atGUSQ Real Estate Wealth often lies in the Driving Trends …: Growing up in rural… http://bit.ly/d2kVqM #RealEstateTrends

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