What’s Going to Happen Next in the REI Market?

[William Allen]

Terry Burger a close friend and associate of mine is a self-proclaimed data geek and his super power is understanding the retail consumer and how to find opportunities in current data trends. He understands how to look at the right data to make sense of and predict real estate patterns. One of his favorite things to say is ‘humanize the data.’ Data simplified is a reflection of human behavior and the external factors that are influencing it. Data that reflects real estate opportunities is nothing more than the measurement of the common and uncommon activity of people seeking to meet one of their core needs, shelter and housing.

Recently I sat down and had a conversation with him about where the REI marketing is going and I thought I would share my biggest takeaways with you guys.

Fact vs. Fiction in Today’s Market

When discerning the truth of what the data is telling us, it is important to ask these 3 questions:

Have we reached the peak and where are the opportunities lying in this market?

It is important NOT to compare data from this year to 2020. Why not? 2020 data reflects one thing and that is the anomaly of the pandemic. It was a year when all bets were off and the numbers reflect that. The media itself has also become a competitive market and the way that facts and data are relayed from 2020 reflects the media’s desire to ‘hook’ you into their publication with sensationalism.

Who is our customer?

If you are flipping or wholesaling houses you have to understand who your customer is. The current date reflects that who is buying right now, are people under 40 years of age. What can you understand from this? What price points are the under 40 age group buying at? When you look at the data from last year, you see millennials looking for deals and voting with their feet moving to places with affordable housing like Detroit and Austin.

What do we Define as Pandemic Induced Behavior?

The overwhelming trend is people are moving out of big metropolitan areas to medium or small metropolitan areas. Even within large metro areas people are moving to suburbs because they no longer have to commute due to covid. This is based on the data from change of address forms. People from mid metro areas moved farther out into rural areas and people in rural areas tended to stay put.

To support this data Terry looked at data from a large moving company, Atlas. People are showing a trend from moving from high tax areas to low tax areas because they can with the advent of remote work.

Additional Questions that Assist in Market Predictions:

Are cities coming back?

Terry projects cities will come back, it is just a matter of time. Human beings have short memories and once the pandemic is behind us people (particularly young people) will want the convenience and excitement of big cities.

Job Market Complexities

There are currently 9 million job openings and 9 million unemployed. How are these job openings not matching with the unemployed? In short, people desire to work remotely, want to change jobs and industries, and feel no sense of urgency to get a job due to unemployment benefits. There are also massive shifts in industries that up to now were fairly steady such as the hospitality industry. 70% of workers in hospitality/service industries are looking to change industries due to the insecurity of hospitality/service with the pandemic.

The Future of Work

Smaller firms expect employees to fully return to work. Bigger firms expect only 1 out of 3 workers to return. Smaller businesses tend to be ones that require physical presence and labor such as restaurants, tree trimming etc. Another data point that will affect the job market is that 42% of employers are going to require a vaccination and this is going to cause a legal battle.

So how does this Affect Real Estate?

Forbearance Opportunities: Kicking the Ever Changing Can Down the Road

The Eviction/Foreclosure ban is now at an end, however the deadline for first legal action or the banks sending a note of foreclosure is 180 days from 7/31/21. In an effort to learn from the 2008 recession banks have put into effect ways to work with people before foreclosing such as loan modification. If you are aware of these options you offer them to potential sellers and come up with the best solution for people on all sides of the market. Ultimately we in the real estate market are benefited by people not losing their homes in mass quantities.

You can inform people at risk of going into foreclosure that it is possible to modify your loan to today’s interest rate which will help avoid a complete recession. A mortgage holder can also apply for forbearance until the end of September that will allow for six months of help. There is also a 3 month one time extension for forbearances applied between July 1st to September 30 of 2020. These fail safes are put in place to keep the market from dipping too quickly into mass foreclosures and destabilizing the market.

This benefits you as a buyer if you can find people in forbearance and work with them to buy their homes, saving them from the bad credit of a foreclosure.

Let’s go back to one of our Original questions ‘Have we reached the Peak?’

If you look at Google trends from the last five years and throw out 2020 (for aforementioned reasons) the 2021 market resembles the flourishing real estate market of 2018 and 2019.

There was however a problem in the 2018 2019 market; it was an inventory problem. The banks were not lending to builders and investors as backlash from the 2008 recession. After 10 years this shift translated into an inventory problem. The issue in our market today is not a pandemic problem, it is a continuation of the inventory problem that was created from the last recession. In essence the market has stabilized by returning to what it was in 2018/2019.

Mortgage Opportunities

Mortgage applications are going down and have been since May 2020. People are choosing to spend money on things besides real estate if they don’t have to move. You have to watch mortgage data over many weeks to notice trends. Currently applications are going down and listings are going up.

Pro-tip:

A great tool to find current data of your nearest metro area is Redfin.com

To conclude, take a look at the hundred most emerging markets in Real Estate. Interestingly enough a city in Montana is at the top of this list. Why? Data shows that people are moving from big metro areas to small rural areas because they want low taxes and affordable housing so the market reflects places where people can meet these requirements and get away. The pandemic has given us the ability to do that with remote work.

We hope this helped give you some tips on understanding what data to look at for emerging trends as well as some helpful predictions for the future of real estate.