Levine Capital Newsletter – January 2022

January 6, 2022

Real Estate Update January 2022

Find out what’s happening in the market now, what’s driving trends and investor choices, as well as the latest updates from Levine Capital…

The State Of The Markets

Key factors at play right now…

Inflation Could Reach Tipping Point In 2022

It seems that the real inflation impact of the past couple of years may just be kicking in this year. Planned price hikes by grocery suppliers kick in for Q1 2022, with some items heading up by over 20%. The Dollar store recently hiked its prices by 25%, storewide. Some auto insurers have been hiking rates by 30%.

This doesn’t include inflation in taxes, gas, and other items.

Most workers have probably not received such large raises to help them keep up. Bloomberg reports that even 72% of CEOs expect to lose their jobs in 2022.

The wealthy may not notice much impact from 30% or higher inflation. Though, with average Americans experiencing 60% or far higher inflation in their expenses over the past two years, this could prove to be the tipping point.

That is going to show up in some form of distress. Typically consumer debt, followed by auto loans, and then housing.

The only ones that may benefit from this are investors who have been eager for more inventory, and who are enjoying inflation in property prices.

Mass Job Migration Underway

The last two years have already recorded epic levels of migration out of the most restrictive states, including California and New York. It’s not just individuals, but major employers as well.

NY’s latest COVID mandates went into effect on December 27th and could be sparking far more migration out of state.

Despite thousands of essential workers refusing to get vaccinated and leaving the state, these mandates have now been placed on all private-sector workers as well. A ruling which is expected to impact at least 184,000 businesses.

This is despite NY having what is believed to be one of the highest vaccination rates in the world. Yet, one in every 60 people in Manhattan was positive for COVID at the end of last year.

If even 25% of those businesses choose not to comply and move, that’s 46,000 companies and their workers likely to leave the state in the coming weeks.

The migration of these employers, employees, and all of their capital and spending power is going to have a significant economic impact on both where they are leaving, and where they move to.

Investor Activity Has Been Surging

It appears that investor activity has been surging in many alternative investment classes recently. Including NFTs, crypto, private lending, and of course real estate.

According to the latest data from CoreLogic, investment in single-family homes began picking up in Q2 2020 and has been responsible for around 25% of all SFR home sales for most of 2021.

Some of the most active metro areas for investors over the past year have seen over 38% of home sales going to investors. That includes LA, Phoenix, San Jose, and Atlanta, with almost 43%.

Some of those least saturated by investors include Pittsburgh, PA, at just 0.2%.

The State Of The Real Estate Market

Deals and trading volumes in real estate continue to abound.

Lenders More Likely To Prefer Investment Property Loans In 2022

Mortgage lenders and their investor backers are more likely to favor investment property loans again in 2022.

While overall US mortgage loan performance seems to have been improving, including the most subprime like FHA loans, investor loans still seem to offer the most profitability and lowest risk.

They are subject to fewer regulations when it comes to foreclosing on non-performing borrowers. These loans typically command higher fees and interest rates. Loans are typically made with stronger collateral, to experienced operators, with equity and cash flow to support them.

Google Makes Another Play For The Real Estate Market

Corporate giants including Amazon, Facebook, and Google, have been making varied attempts to take over the US real estate industry for years.

Google’s latest play seems to be taking over the gap Zillow is leaving in the market. Google searches are now beginning to feature ‘Google Screened’ real estate agents in the #1 spot in their search results.

Of course, these are paid ads by real estate agents who are constantly vying for positions and real estate leads.

This may also be part out of desperation to retain advertising dollars from the real estate industry, which has been feeling burned out on spending a lot on PPC ads, for little results. Much like the cycle, they went through with Facebook before that.

Online Reputation Becoming More Influential For Landlords & Investors

New data from Globe St. reveals that online reputation and reviews are becoming even more important for landlords and property investors.

It should be no secret given how much we all check out online reviews for everything today. Yet, with more data and clarity, the industry is gaining more of an understanding of how impactful it is in dollars and cents.

For instance, a single point rise in online reputation scores can result in a 3.45% bps boost to revenues.

Expect to see a continued divergence between landlords and operators who prioritize customer service and the long term over short-term thinking.

What’s Most Important In Investing Now

This moment is all about positioning. It is about positioning your portfolio to benefit the most from what’s next while minimizing your downside exposure to risk and taxes, and maximizing the upside.

Talk to one of our experts to answer all the questions you still have about the market, what’s smart for your portfolio, and where the best opportunities are now.

Levine Capital Updates

We are pleased to announce a new investment opportunity that can be characterized as a high risk-adjusted yield, safe, and liquid investment. The hallmark of the investment strategy is to provide capital to fund 1st lien position loans backed by real estate collaterals, sell the loans for a profit to institutional buyers in the secondary market, and, most importantly, recycle funds over and over. More details about our upcoming webinar will be coming soon!

Be sure to check our site for the latest developments here and check out the latest news and insights on the market in our news section.

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