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Market Forecasts and Investment Property

Author: Alex Delaney

The Prediction:

Many economists, from JP Morgan, to Forbes and Moody’s Analytics, are predicting a 2020 global recession. According to a panel of over 100 housing and real estate economists, we are likely heading for a recession in mid to late 2020 or early 2021. But experts agree that a housing bust is unlikely.  For one, we do not have sub-prime mortgages that were prevalent in the last recession. For another, many homeowners have refinanced at lower fixed rates in recent years. In addition, the housing market is slowing down and already starting to experience a correction. This slow-down will actually help if, and when, a recession does occur.  And the Fed is raising rates at a very slow pace. These factors should help keep the housing market stable.

While home prices continue to rise, with the expectation of a 4.1% increase in 2019, on-going appreciation will slow significantly to 2.8% in 2020 and just 2.5% in 2021. Inventory will continue to be tight, but with the prices continuing to increase, and wages expected to remain flat, properties will stay on the market longer and sales will suffer. The expectation is that home prices will not fall as they have in prior downturns due to the continuation of a tight market.

Currently,  there is only a four-month supply of available homes for sale.  Normally, 40% of home sales go to first time home buyers. That percentage has shrunk to 32%.  Because of the changes in the tax code, many Americans are no longer itemizing and cannot take advantage of mortgage interest deductions, further harming their purchasing power. Many young people, who would normally be in the market, are unable to purchase a home due to student loan debt and difficulty saving due to high rent payments.

Affordable rental housing has dropped significantly from 11% in 2010 to 4% in 2016. This problem is exacerbated in metro areas where prices have risen dramatically. While this won’t impact investors looking for high rent opportunities, it is worth noting.

In the Atlanta metro area:

Building has reached an all-time high, especially in multifamily units. But the overall occupancy rate is still above 94% and Metro Atlanta ranks in the top 10 among major metro areas for population growth, making it a good place for your investment dollars.

What To Do:

To prepare for a possible economic downturn, landlords should focus on keeping vacancy levels low. People will continue to need housing no matter what the outlook. Moving is costly and tenants will avoid unnecessary expenses during an economic crisis. Keep an eye on comparable properties and adjust rents accordingly. Make sure your marketing strategy is competitive and your rentals are maintained.

If a recession does hit, it may be time to take advantage of a temporary dip in property values and snap up what properties you can afford without jeopardizing your overall portfolio. Avoid vacation rentals, as these tend to get impacted hard by recessions. Multifamily units in walkable neighborhoods show strong demand, especially in metro areas.

Keep your eye on the prize. The economy will shift again and values, even if they drop temporarily, will eventually regain momentum.