Now that the election has passed the media, pundits, insiders and outsiders will sift through all the data looking for reasons to explain the results. Equities markets reacted negatively to Donald Trump’s victory, but within 24 hours nearly all the losses were recovered. Bank and drug maker stocks especially surged on the news.
It’s projected by national analysts like RealtyTrac, and housing publications like DSNews, that the real estate market, specifically home price appreciation, will likely continue to rise.
And for what it’s worth, many housing experts predicted modest gains through the end of 2017, regardless of America’s choice for President.
Now that we all know Donald Trump will hold the highest office in the land it’s time to start forecasting his administration’s stance on housing policy. Many believe that one of his first acts of business will be to abolish the Dodd-Frank Act of 2010. This bill saddled banks with restrictions and government regulations, making it difficult to lend. Only those homebuyers with sparkling credit and verifiable W-2 income could achieve the American dream.
The law’s abolishment could mean an increase homeownership rates. Of course, if interest rates rise at the same time then the positive effects of this deregulation could be wiped out. Regardless, it’s difficult to predict a sudden surge in homeownership among millennials, for three reasons:
Flexibility (or lack of it)
Our company, based in Milwaukee, Wisconsin, sells turnkey rental property to investor clients all over the United States. Nearly 85% of the tenants we lease to in the greater-Milwaukee area are 24-32 years old, have credit scores of 650 or higher, and have an annual household income over $50,000 a year.
When we survey our tenants and specifically ask why they’d rather rent than buy, nearly all of them tell us they prefer the flexibility of renting.
Should a better job or business opportunity present itself in another city they want to have the freedom to pick up and move quickly, without the burden of selling their home.
Lack of Liquidity
Many housing analysts blame the lack of homeownership among the millennial crowd on student debt. While this is certainly a factor another is an overall lack of liquidity. One tenant recently told us that she’d like to buy a home, but is scared if she had to make any big repairs, like to the roof or furnace, she’d have no cash to fix the problem.
Although it may seem like a lifetime ago the housing market crash of 2008 is still fresh in the minds of the millennial crowd. They recall their parents getting underwater on their mortgages, forced in to short sale or strategic foreclosure.
The idea of taking on this much debt is frightening to them, even if their monthly payment is half the cost of rent.
Cashing in on the Trend
At REIMidwest, we’ve learned that there’s a tremendous amount of pent-up demand for updated, well-appointed rental property, by millennials, and just about anybody else that has either rejected or given up on homeownership.
And this trend isn’t just happening in Milwaukee.
Many Midwest cities like Kansas City, Cleveland and Oklahoma City are seeing similar demand for remodeled rental property, mostly because housing stock is so old and current landlords lack the capital required to renovate their properties.
Tenants are willing to pay a premium, resulting in net CAP rates of 7 or higher.
Those investors that choose to build their rental property portfolios could actually cash in twice on this trend. By purchasing turnkey rental property in appreciating areas they earn above average returns and monthly cash flow.
And when homeownership begins to start trending upward again (it always does) they can sell at the peak of the market.