The Azucena Take: How the Housing Shortage is a Win for Investment Property Owners

Inflation, the hit to supply chains and the housing shortage is a topic we have looked at numerous times in the last few months. With August around the corner, many of my colleagues in residential real estate are still sharing the same stories about finding the perfect home only to be completely outbid by someone else.

As of July 2021; the national average price for a home is up by 24% while some communities (like San Bernardino, CA) have seen the average home price jump by 32%. While these prices are not sustainable, many also don’t believe this to be a bubble. The obvious factor in the spike has been the high demand and low supply along with the hit to supply chains.

Looking at the rise in demand tells a completely different story as two factors are at play. The first is working from home has given people the freedom to live anywhere they like instead of being tied down to a major metropolitan. With the option to work from home, many have migrated into secondary/tertiary markets. The second factor is the aging millennial population, who are now in their early 30s and looking to settle. Creating a new market for first time homeowners.

So, will all this be resolved soon? The answer is no! The rate of new homes being constructed took a serious dive during the 2008 Crash. Even though it picked up a few years later, it has failed to come close to the pre-crash numbers. While new homes are still being built in 2021, the hit to supply chains has slowed everything down.

For owners of investment property, this just means their planning and patience have paid off. People need a place to live and rentals are the alternative to owning a home. At the same time, problems that impact the construction of new homes also apply to the construction of new apartments. Combine these factors and it’s obvious why the national vacancy rate is at 3.8%, the third-lowest in the last 20 years. Thus, all current multifamily properties on the market are incredibly valuable.

This is also one of the best times to sell for those who want to diversify their investment portfolio. Those who have multiple investment properties in a single market might want to consider selling one. This would be one of the best times to sell or exchange (through a 1031 exchange) an investment property. First, speak to a professional (like the Azucena Group of Marcus & Millichap) to see what are the best options.