The most important statistics for one investor aren’t always particularly important to another. For instance, if you want to know “what are today’s hot real estate markets?” you can simply google for that statistic. However, by the time you take action, all the best deals will be gone and what drove the hot market is probably cooling off. You’re better off finding the underlying statistics that drive these markets and then finding a new and sustainable market rather than a hot flash in the pan market.
Sustained population growth is one of those statistics. There have been two major trends driving population growth. One is economic opportunity, and the other is baby boomers retiring to sunshine states. These are likely to rebound as the economy continues reopening and hopefully expanding. Even then all things are not equal. Economic growth first drives the demand for rental properties. Apartments in particular. If the growth is urban, there will likely be high demand for luxury apartments. In suburban areas, there won’t be as much demand for luxury as there will be for larger multi-bedroom apartments for families with children. In the sunshine states, look for senior communities with activities appealing to retirees. Stay away from temporary population spikes like the ones that happen occasionally in the North Dakota and Texas oil fields.
Economic growth needs to be sustainable. That’s the problem with oil fields. If you want in on the spikes, try leasing and then subleasing apartments and houses so that you don’t have to invest capital and you can also get out quickly. Otherwise, look at long-term job growth and other economic factors like interest rates. For instance, if you want to flip a house, today’s rising interest rates favor people buying in economic hubs where wages are more likely to keep pace with costs (interest rates and inflation). But it’s not only interest rates to keep in mind. In general, rent and mortgage payments shouldn’t be much more than 33% of people’s gross income. Above that, you’ll see more late payments and turnover. Your investments should account for all of this.
Population growth is not always the same as economic growth. Especially in the west where considerable population growth in cities is due to annexing suburbs. When a city annexes a suburb, the city population might grow by 100,000 people but not a single new person actually moved in. When you look for population growth, look all across the region at the municipal, county, and zip code levels.
Unemployment rates are low today, but they won’t always be. Unemployment numbers are important but are more of a lagging indicator than a forward-looking indicator. Unemployment rates tell you how many people are looking for a job. Not how many people have found work. Today’s unemployment picture is very unclear because many people no longer want low-end jobs. A lot of advertising for low entry-level jobs or limited career jobs doesn’t mean much. Look at the type of jobs being advertised. Advertisements for skilled jobs indicate both economic and population growth when qualified people are moving to the area.
Demographics have changed. Investors have been in the habit of catering to baby boomers for so long that many are missing out on the shift in demographics. As of 2019, Millennials became the largest generation group in the U.S. with more than 72 million of them. In 2017, Millennials accounted for 33% of homebuyers. By 2025, Millennials are expected to form 20 million new households in the U.S. By sheer size, baby boomers are still a demographic to track but as they age, boomers are less active in the market. Millennials are now clearly the driving force.
A digital revolution is not happening. The revolution is over. A big consequence of younger buyers is that we now live in a fully digital world. If your marketing strategies haven’t made the shift, you’re a dinosaur. This means using drone photography because aerial photographs sell 68% faster than properties with standard images. Today 93% of buyers who are 36 years old or younger use the internet for a house search before talking to an agent. It’s even a very small fraction of those over the age of 51 that still talk to an agent first. Still, 90% of home-buying Millennials, Gen X’ers, and young Boomers buy a home with the help of an agent in the end. If you don’t have a strong internet presence, you won’t be the person they call. Importantly, your “About Us” page is the third most-viewed page. Make sure it talks to your prospective clients.
Know your digital footprint. We’ve known for many years that your website must be search engine optimized (SEO). Not only for Google but also for YouTube. The younger generation searches for YouTube videos almost as much as they google for the information. This is perfect for video marketing real estate. There is a ton of information available about driving SEO traffic and finding leads but mostly it comes down to consistent and current content that targets the right keywords. And today it means offering real-time and personal video tours once a buyer does call you.
These types of statistics won’t make you wealthy fast. But if you want sustainable wealth, you need to be in sustainable markets.
Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to [email protected].