Real Estate Investing is Nice Work if You Can Get It

Sheila Seclearr's picture
Investing in Real Estate

Earlier this summer, CNBC’s Real Estate program, Power House, announced a “severe inventory shortage” in Boston. Charlesgate Realty Group’s P. T. Vineburgh said “overall the market is hyper-competitive, highlighted by a severe shortage of inventory.” He added that "low rates, international investment capital, strong core businesses as well as complex zoning is inhibiting any notable amount of new supply-driven market performance.

Any new product is typically super high-end as this is all that can justify development, given acquisition and construction costs."

Other news services agree that this is trending nationwide and is feeding on itself. When their upgrade is hard to find, people tend to stay put. And downsizing is probably even harder, given that the lower end investments are snapped up even faster. More markets have been reporting bidding wars over their scarce good properties.

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But as interest rates creep up, the supply continues to fly off the shelves, so to speak, with days on the market dropping too. The listing shortage fuels price gains and you’d think it would be incentive enough for people to seize the opportunity. Everyone says they want a quick sale, but apparently not if there’s nowhere to go.

What is Shadow Demand?

Commerce Department data indicates new construction of single-family homes was at about 60 percent of the 20-year average earlier this year. Homebuilders cater more and more to buyers who can afford larger homes with high-end finishes, giving the builders a better return on their investment.

People who might consider moving but are waiting in the wings are creating shadow demand. People who could afford to refinance at low rates over the last five years are reluctant to let go of them. They’re waiting until they have major motivation, such as a relocated job or a significant change in the size of their family.

What does all this mean, if you’re looking for real estate opportunities? Have you looked into the market in your area for multi-family units, including rental properties? It sounds like there will continue to be low-to-mid-level housing needs in most communities, especially those in urban and university areas. Watch here for some resources on finding financing for those deals, too. And chime in with comments about any creative suggestions for fellow investors.

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