The real estate market and investment have changed a lot over the past decade.
Let’s take a look at some of the biggest changes and trends which have reshaped the real estate space, how individuals and institutions are participating in it, and what you’ve missed out on if you’ve been sitting on the sidelines.
When we look at the period from 2011 to 2021, the most obvious change in the US real estate market is probably the recovery. Individual markets began turning around from the 2008 crisis in 2011. By this point, places like Key West were booming again. Others with substantial backlogs of foreclosures and REOs and lengthy legal processes took a little longer to recover.
According to the Federal Reserve Bank of St. Louis, the median US house price in Q4 2011 was just $221,100. By Q2 of 2021, that number was $374,900. Many put it even higher. More and more zip codes have an average home price of over $1M.
It’s also worth noting that the previous median house price high was $257,400 in 2007.
Since then we’ve seen economic recovery, a real estate recovery that couldn’t even be stopped by COVID lockdowns. Gen X may have been the worst hit in 2008. As of 2021, they held 30% of national wealth, with a 50% spike in wealth during the months after COVID restrictions hit.
Investment capital flows have changed too. Mortgages and credit virtually disappeared in 2008, with many banks and financial institutions disappearing. FHA loans and hard money loans were about the only options left on the table.
Capital has bounced back as wealth has rebounded, but it is flowing differently than in the past.
Nonbank lenders now account for around 60% of mortgage loans made. This is often made possible thanks to capital aggregation among private investor lenders, and secondary market liquidity provided by Wall Street firms and other super-sized institutions.
Many institutions, including multi-billion dollar Ivy League endowment funds, have been weighing their investment portfolios with more alternative investments, like real estate. A new generation of billionaires like Zuckerberg and Bezos have been extracting cash from other markets and investing it in their personal real estate portfolios.
The Democratization Of Mortgage Debt Investments
Among the most notable real estate investment opportunities to arise out of the ashes of 2008 has been mortgage debt investments. This is partly thanks to new technology, as well as increased awareness of the opportunity, and the huge void banks and servicers left in the market.
New funds and individual investors found the opportunity to become the bank themselves and do a better job at it while enjoying solid assets with great returns and cash flow.
More recently, COVID restrictions and fear caused many to pause house flipping, including Zillow. We also witnessed the death of offices and traditional retail property. More investors have gravitated to real estate debt, private lending, and holding multifamily income properties.
Most recently we have experienced hyperinflation. Real estate investors have been enjoying their best years on record, with high double-digit and triple-digit improvements in rents and equity. Even though COVID this has proven unstoppable.
These also happen to be recession resilient assets that benefit from inflation and provide downside protection too.