In the ever-evolving real estate investing landscape, 2024 is poised to be a year of both challenges and opportunities for investors. Despite economic headwinds like soaring mortgage rates, fluctuating housing prices, and low housing inventory[1], real estate investing continues to open doors for first-time and small-scale investors alike, enabling them to build generational wealth and play an active role in the revitalization of their local communities.
Looking to start planning out your future real estate portfolio? According to Charles Goodwin, a seasoned single-family rental investor and Senior Director at Kiavi, the key to success in this field is to recognize smart long-term investments and develop a realistic exit strategy. Taking a look ahead to 2024 and beyond, Goodwin has identified five key trends in real estate that investors should consider – from tapping into emerging markets and making the right strategic investments to understanding the economic forces at play.
In an era where housing affordability is at an all-time low and mortgage rates are at their highest level in more than 20 years[2], the resilience of the fix-and-flip market is a testament to dedicated and entrepreneurial investors. Despite constrained inventory, Goodwin says robust demand persists, which makes the market ripe for investment in fix and flip properties. Savvy investors with a discerning eye can rise to the challenge of transforming fixer-uppers into lucrative ventures through strategic refurbishment and timely market engagement.
“Professional fix-and-flippers have been doing very well in 2023, which is something that many people who aren’t in the real estate investing business may be surprised to hear,” Goodwin says. “But the reality is that low inventory in the resale housing market still allows a flipper to gain returns on their investment if they have a good product.”
According to the National Association of Realtors (NAR), in 2023, first-time homebuyers made up 32 percent of all residential home buyers, up from last year's historic low of 26 percent[3]. Fix-and-flippers are creating a market that enables first-time home buyers to find affordable, move-in-ready homes to buy. On-demand fix and flip loan capital has made this even easier, thanks to new technology opening pathways for historically marginalized borrowers and making the process of accessing capital for investment properties faster and more efficient.
The year ahead is shaping up to be a slower one for transactions, given the sticker shock of 30-year fixed mortgage rates jumping from 3.72 percent in 2020 to over 8 percent in 2023[4]. While it’s unlikely those rates will drop anytime soon, Goodwin says the downtime isn’t necessarily a bad thing. After all, stable mortgage rates mean smarter long-term planning and more careful decision-making.
Inventory might not be rising due to homeowners with locked-in rates choosing to stay put, but prices aren’t dropping either. There is still plenty of demand in a competitive market, and people always need a place to live. In short, if you find the right property, the time is always right to grab it.
“There are still enough buyers out there to support the low inventory and move product,” he says. “Mortgage rates remain steady and slow, but it is still a better market overall than it was at the tail end of 2022. You're not seeing inventory rise quickly or prices drop as deeply.”
Patient single-family rental market investors ready to weather the current challenges of escalating property taxes, insurance rates, and mortgage costs could reap incredible benefits in the long term by taking advantage of the softer resale market to buy properties selectively, Goodwin says.
According to ATTOM, profit margins on median-priced single-family home and condo sales in the United States increased to 59 percent in the third quarter of 2023 – the second straight quarterly increase following several declines[5]. This underscores the significance of single-family rentals remaining steady investments against inflation.
No matter the business, choosing the right location always matters. But unless you already have deep pockets, you’ll want to keep your eye on emerging and growing markets to get the most bang for your buck. Goodwin says the Sunbelt and Midwest continue to have the best outlook compared to pricier markets in the Northeast and West Coast—though it’s still possible to pick up opportunities there, too, if you venture beyond major metro markets.
Consider the potential of under-the-radar but growing tertiary cities[6] like Ames, IA; Burlington, VT; and Portland, ME. For growth, Memphis, TN; San Antonio, TX; and New Orleans, LA all have the highest year-over-year for-sale inventory as of October 2023, according to the latest Zillow Economic Research report[7]. Closing costs are another factor to keep in mind when considering investments. According to NAR, closing costs in New York and New Jersey can run as high as 2.47 percent, while the closing cost on a property in South Carolina might be only 1.45 percent on a property with a median home value at half the price[8].
Don’t underestimate the power of new construction, a space where there’s a serious opportunity even amid a slowdown. Goodwin notes that while builders’ margins are declining, it’s still an overall healthy business. Case in point: The National Association of Home Builders predicts that single-family production will rise from an average of 744,000 units in 2023 to 925,000 in 2024[9].
“Large rebuilders have been doing extremely well in 2023 due to their ability to buy down mortgage rates to maintain sales volume,” he says. “When a builder can offer someone a rate of 5.75 percent in the new market, compared to a 7.75 percent rate in the resale market, it’s easy to see why home builders are doing really well right now.”
The fact of the matter is even when it feels like the forces are against it, making smart investment decisions can still yield excellent returns. Transaction slowdowns don’t signal a dead market—there’s always a buyer out there. Goodwin advises would-be first-timers and small-scale investors to do their research, roll with the punches, and keep their eye on the prize.
“The sky is not falling in real estate. Your business is being put to the test at the moment, but that provides you an opportunity to build a business that’s able to survive anything. The best businesses will do just that,” he says.
Sources:
1Bankrate, “Low Inventory Housing Shortage,” accessed November 29, 2023
2Redfin, “Housing Market Update: Mortgage Rates Soar, New Listings Hold Steady,” accessed November 29, 2023
3National Association of Realtors, “NAR Finds Typical Home Buyers' Annual Household Income Climbed to Record High of $107,000,” accessed November 29, 2023
4National Association of Realtors, “Mortgage Rates Just Hit 8%: Should You Still Buy a Home?,” accessed November 29, 2023
5ATTOM Data Solutions, accessed November 29, 2023
6Rocket Homes, “Most Promising U.S. Cities for 2024,” accessed November 29, 2023
7Zillow, “Research Data,” accessed November 29, 2023
8National Association of Realtors, “States Where Closing Costs are Highest, Lowest,” accessed November 29, 2023
9Tradesmen International, “Construction Industry Growth Predictions,” accessed November 29, 2023