As January 1, 2014 comes and goes, the public is left to focus on new healthcare mandates that will have a significant impact on the incomes of W2 wage earners. Officially inflation may be "low" but everyone in the private sector is well aware that food and fuel seem to be growing more expensive by the week. Inflation has grown by over 500% since most of the Baby boomers entered the working world in the mid 1970's. But incomes peaked in 1988. According to the US Census Bureau real incomes have been falling since 1999.
As of this new year the public now has a major new tax burden, requiring that every single American purchase healthcare insurance. And since this law has been structured as a tax, anyone who fails to follow this mandate will be subject to fines, penalties and the jurisdiction of the all-powerful IRS.
And here in metro Atlanta, Georgia, we are already seeing large numbers of full-time workers cut back to part-time hours. So far the cutbacks have been concentrated in sectors with low profit margins, such as grocery and retail stores. If enough workers find their hours cut back during the coming year, on top of a personal increase in healthcare expenses, we could see a spike in foreclosures, which by the way, are still well above their historical averages.
And if the talk of Fed tapering proves to be true, interest rates could start creeping toward levels not seen in years. We forget that the historical average for home loans is 9% interest. Many of us older investors remember when interest rates were over 15%, back in the 1980's. Today, anything even approaching 6% could put a big dent in home sales, not to mention the over all economy.
One way that people will cut their cost of living is by lowering their standard of living to reach their version of "affordable housing". In recent years I've seen more and more people living in extended stay motels, which have been one of the new "hot" investing models in lower income markets.
I have several personal friends who are focused on mobile homes, and doing creative things like renovating them and selling them on a note with seller financing. Their rates of return are impressive and there is no lack of demand. During more "normal" times in years past, mobile homes were the bottom of the bucket, and few investors wanted to go near them. Today investors are gravitating to mobile homes as demand for them steadily grows.
One investor friend of mine is using renovated mobile homes and rural land to create "mini-estates" for the new lowest-of-the-lower middle class. He is answering a demand that is clearly being created by the growing financial burdens being foisted upon lower income workers.
We are seeing the development of two different real estate worlds in the residential sector - The professionals who cater to those who have the necessary credit and work history to meet today's more stringent qualifying guidelines, and the investors, who will cater to those customers whose income is well below the median level of $51,000.
The likely result of all this for traditional real estate investors will be the continuation of steadily increasing demand for lower cost housing. People are moving out of big houses into little houses. (a fact that cannot be documented in ordinary sales data). People losing their entry-level FHA financed home are moving in with family or moving into rentals with a lower cost - whether that be another home, an apartment or a trailer. And young people searching for their first home often lack jobs or qualifying criteria for an FHA mortgage. Many of them need investors who can offer them a creative alternative to the Dodd-Frank QRM regulations.
The housing market of 2014 will represent less of a return to the previous norm, and more of a transition to a new era. An era in which buyers have less disposable income while investors own a higher and higher percentage of the overall housing market. This definitely isn't your fathers housing market anymore. But as always is the case with real estate, it's such an essential commodity that creative investors and industry professionals should find plenty of opportunity to move ahead during the coming year.
Donna S. Robinson has 18 years experience in the real estate industry. She has been both a licensed agent and a full time real estate investor. Donna has authored several books on real estate investing, and her course on "Real Estate Investing Fundamentals & Strategies" has been approved for Continuing Education credit by the Georgia Real Estate Commission. View teaching videos and more information on her website at www.RealtyBizConsulting.com