What’s next for the U.S. real estate market in 2021?
What should real estate investors expect from the property sector in the months ahead? How might that influence the best investments to be made?
The Wildcards
For years, we’ve been told that the theme of the year is uncertainty. While there may still be some of that floating around, it seems like there may be more certainty in the outlook than there has been for a while. Even despite all the excitement of the past 18 months.
There are plenty of potential wildcards that could be played, and which could impact the market. That includes new and ongoing stimulus, new pandemics, or deadlier variants of COVID, as well as the potential for unprecedented new legislation.
Still, given how strong we came through the events of 2020, investors should be very confident in the ability to survive and thrive ahead, no matter what comes.
Inflation
Given the government’s insatiable appetite for inflation, we should expect more of it. The White House touted a decline in the price of hot dogs for the fourth of July weekend, suggesting even more efforts may be made to increase inflation to reach their targets in the months ahead.
If hyperinflation just isn’t enough, be prepared for warp speed inflation.
That could well carry over to rental rates and property prices.
Interest Rate Increases
The Treasury Department and the Fed have made it clear that they want interest rates to go up. That may not happen in 2021, but it is on the horizon.
Diverging Real Estate Trends
Don’t expect all real estate to perform the same this year.
Investors should be wary of speculation in the single-family resale market. Prices and competition have burned out many retail homebuyers in many areas. Any uptick in interest rates would take millions of buyers out of the market. Many won’t be able to afford further increases. However, this could be significantly split between ongoing growth in secondary and tertiary cities with more room for price growth, versus the priceless gateway cities which have been seeing rents and demand fall.
With a white-hot economy, and the minting of new startups and tech billionaires, there could be plenty of activity in the ultra-luxury market.
Though individual investors and real estate companies with institutional level money are most likely to be pursuing more reliable opportunities in commercial real estate investing in the multifamily sector.
Rental demand is only growing, leasing activity is expected to be up in the months ahead, and with the return to the office, workforce housing could be one of the lowest risks, cash flow plays.
Be Aware Of Seasonal Changes
Investors need to be knowledgeable about annual versus macro real estate cycles. Summer tends to be the peak buyer season. Fall typically sees demand and prices cool off, before the end-of-year rush as investors look to close for tax breaks, and individuals invest their year-end bonuses. Don’t let these seasonal changes in the data fool you into thinking they are bigger macro shifts.
Summary
Overall, 2021 seems to be shaping up as another record year for the real estate market. There could be some moderation in the single-family resale retail space, though there is plenty of demand for rentals and workforce housing. There are always potential wildcards that could influence the market, but knowing your annual and macrocycles will help you make sense of the data, and differentiate between big shifts and seasonal trends.
