LOOKING INTO 2021
We’re in a period of faster home price appreciation. I believe in 2021, you’ll see home prices appreciate at a rate of 8-10% (the norm is 4.3%/year).
- Because of historically low months of inventory, supply will remain low as builders will not be able to build enough homes quickly enough to meet demand. They cannot build themselves out of this supply issue while demand is still high — it won’t happen in 2021.
- Many are worried about those who are in financial trouble and who haven’t been able to go through the foreclosure process yet, but are behind on their payments. This is different than what was happening in the Great Recession. Then, Wall Street wasn’t bought into single family rental homes. Now, they are. There’s a lot of money out there ready to buy properties should they hit the market. There’s a lot of money in the build-to-rent phenomenon – basically Wall Street hedge funds, even builders, now building inventory to rent out. JWB was the first to do this in 2011 and Wall Street is doing that now, because they can’t source their own inventory with renovation. So if a glut of foreclosures hit the market, there will be a ready, active, and willing buyer.
Another thing to keep in mind is that many now going through foreclosure have significant equity in their homes. So they will go through foreclosure, but they’ll be able to sell their homes before it goes to the foreclosure auction which will cause prices to decrease less and the market to be less affected by foreclosures than in the past. So while there will be some economic damage and foreclosures, the fact that we only have 1.3 months of inventory here means that the market could use some inventory and, at the same time, the inventory that hits the market should not be as depressed for pricing as we saw back in the Great Recession.
We should also consider the ways these foreclosures are happening. They take at least a year to go through and banks aren’t even allowed to start the foreclosure process right now. I don’t see many impacts from foreclosures hitting the market in 2021. There will be more of an impact in 2022 and 2023. Of course, we expect to see interest rates staying low as well, which helps demand, and we don’t think people are going to stop moving to Jacksonville or to Florida, which is a main reason why we see such an increase in home sales.
NOW IS THE TIME TO INVEST
We’re in the more quickly appreciating part of the market and, as a rental property investor, you really need to be paying attention right now.
Interest rates and prices are lower today than they’re going to be in the future. Cash flow is such a critical part of this investment — it’s what allows this investment to pay for itself every single month – it’s one of the five profit centers. But what we need to realize is that as interest rates go up and home prices appreciate, let’s say 8-10% in 2021 and beyond, it will become very difficult for investors across the country, and other providers in Jacksonville to produce positive cash flow. JWB has inventory we’ve secured and have continued to build it out so I’m not concerned about us, but cash flows are going to be compressed. The cash flows on the properties that you purchase one year from now will be lower than they are today. So if you have plans to start building your rental property portfolio, there’s really no better time than right now due to low interest rates and the cash flows being higher today than they will be in the future. Really, all five of your profit centers are better today than they will be in the future. If it’s something you’re considering, you should really take action now. Interest rates won’t stay this low forever.