Changing Population Migration and the Investment Real Estate Market
Human behavior is the primary driver of the investment real estate market. People's behaviors shape the overall real estate market, from sought-after population centers to thriving hubs of culture and commerce. Investors need to stay informed about current and emerging market trends in their area and understand how to adapt to these changes.
Understanding current market trends will help an investor capitalize on economic growth in a market or prepare for a potential market boom.
Current Trends in Population Migration
The impact of the pandemic on the real estate market has been substantial. Major cities witnessed significant population shifts, with tertiary markets and the Sunbelt experiencing an unprecedented surge in migration. Even though the pandemic occurred only a few years ago, its effects are still being felt in the markets. While some major cities have recovered quickly, others are still grappling with challenges. Meanwhile, tertiary markets and the Sunbelt saw a spike in residential property values. As developers struggled to meet the demand, owners of multi-family properties experienced heightened demand. This surge also led to increased demand for retail space and storage units.
This is also reflective of development trends in 2024. According to research by Marcus & Millichap along with CoStar and RealPage, the average inventory growth in the United States is at 1.3%. Meanwhile, Austin saw an inventory growth of 5.1%, Las Vegas saw a growth of 3.8%, followed by 2.9% in Nashville and 2.8% in Phoenix. On the other side, Chicago saw a growth of 0.7%, while the entire San Francisco Bay Area saw an inventory growth of only 0.6%.
As developers race to meet demand, another migration shift has begun. Sunbelt has been seeing a decline in migration. At the same time, people leaving major cities have also dropped to pre-pandemic levels. Supply and demand continue to be a driving factor as the supply level in Sunbelt and tertiary markets. While the oversupply may create some issues in the short term, it presents a long-term opportunity for investors who missed out on the previous economic boom. At the same time, the lack of supply in primary markets has contributed to the continued migration into more affordable markets. For investors already in these markets, their limited supply is still in great demand.
The decline in migration is partially attributed to a drop in sales transactions. When the Federal Reserve began raising interest rates, real estate transactions suffered as investors grew uncertain about future rates. Although interest rates have remained steady in 2024, transactions have started to rebound as many investors anticipate potential rate cuts.
What it Means for Investors
A smart investor knows that an opportunity could be found in any market during any economic cycle. One has to plan accordingly or plan out their strategy with the help of a market expert. Trends come and go, and the market is always in a cycle. One has to be ready for the changes to come while also capitalizing on what is happening now.
The Azucena Take provides an inside look into the investment real estate market using the research done by Marcus & Millichap.