The Azucena Take: Disruptions in the Real Estate Market

Like all markets, real estate will go through a boom-and-bust cycle. There will be times when demand is high that it will drive up the prices (boom) and then there will be times when the value will crash while the demand drops (bust). Then there is the rare moment when the market has been disrupted as supply is unable to keep up with demand, creating a butterfly effect.

The market is currently experiencing such a disruption and yes it has to do with the pandemic. Demand for new homes is up but supply is limited. At the same time, it has been difficult to build new homes as the price of raw materials has jumped. Here is break down of it:

• Lumber price has spiked by 90%.

• Steel and copper have jumped by 50%.

• The price of materials overall is up by 17%.

• Acquiring the materials has also become challenging.

• There is also a shortage of skilled labor available in some regions.

All of this is because the pandemic caused a massive disruption to the overall supply chain. Thankfully, this will be a disruption that will be resolved within the next few months (or by late Fall at worst).

While the current market may not be favorable towards consumers, it does present an opportunity for investors. The demand for apartments and self-storage is still up due to the lack of available homes on the market. Due to the lack of new apartment buildings entering the market, thus the vacancy rate will be extremely low. Overall; the value of your current investments has jumped and will remain high for some time.

Investors need to realize that this boom is going to be temporary as the market will correct itself in the coming months. They should better look into how the supply chains are in their area before making any major decisions. One just needs to plan and prepare for the economic prosperity that will be coming this summer.