… That’s according to Dave Meyer, VP of Data and Analytics at BiggerPockets. In response to the COVID-19 pandemic, the Fed distributed over $850 billion in funds to U.S. taxpayers since the CARES Act was passed by Congress on March 25, 2020. Increased monetary supply resulted in aggressive consumer spending. However, supply chain issues and labor shortages caused an imbalance in supply and demand- evident by the historic 6.2% spike in the Consumer Price Index- the highest it’s climbed in 30 years.
In response to surging demand, the Fed is raising interest rates to prevent the economy from overheating. Mortgage rates have been rising and will continue to track the Fed. Buyers anticipating the rise are flipping seasonal trends, escalating traffic and home sales well into the typical quarterly offseason. Traditional investors, who relied on safer bets (bonds, CDs, etc.) are now pursuing higher returns with options such as real estate because they’ve realized their cash is losing value. Desperation can be a strong motivator; a quick Google search shows that over half of home offers written by realtors across the country faced bidding wars in December 2021.
These statistics have two significant implications for investors:
- Competition in the Homebuyer Market = More Quality Renters
In 2021, rental occupancy rates hit or topped 96% in 148 of the nation’s 150 largest metro areas. The southwest accounts for more than half of the nation’s apartment demand, led by Texas which commanded 7.4% of total shares. “Improvements in the economy and job market have helped push single-family rent growth to record levels,” says Molly Boesel, principal economist at property data platform, CoreLogic. “However, rapid increases in single-family rents, especially for lower-priced properties, have led to a continued erosion of affordability”.
While this may appear to be a downside on the surface, Americans are projected to collect an additional 3.4- 3.9% in wage increases this year due to the tight labor market. However, this won’t keep up with the current rate of inflation in rents given the supply/demand imbalance, which indicates that high housing expenditures and affordability concerns could be here to stay.
- Skyrocketing Occupancy Rates are a Long-Term Cashflow Opportunity for Investors
Because the competition in real estate is only growing stronger, even with rates having come off historical lows, now is still a great time to lock in low-interest rates and/or refis.
It’s “the cheapest debt you’ll ever get”, says Meyers.
While other commodities (i.e. rent, gas, crypto, stocks)go up and down, often with challenging levels of volatility, , permanent fixed-rate mortgages on rental properties will stay flat- maintaining predictable expenses, and ideally increasing your wealth while simultaneously building steady cashflow.
Aloha Fund has produced high-yield, low volatility returns for seven years and offers instant access to a diversified pool of 1st position, short-term bridge loans on residential real estate in 40+ states. Aloha Capital also offers permanent financing on rental properties for landlords.
Contact us to strengthen your investment portfolio and stay two steps ahead of inflation.
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Chris oversees business development, investor relations, and capital partnerships. With 25 years of experience in alternative investments, Chris has raised $250 million in assets. He’s served as Chief Compliance Officer, co-managed a Fund of Funds, and worked in operations and trading. Chris has been instrumental in growing four companies. Through firms like Sapourn Financial Services, Dekker Capital Management, and Diamond Peak Capital, he’s delivered solid absolute returns across varied market cycles.