Summer Real Estate Investment Trends To Watch

As summer heats up, the real estate market offers mixed results for investors of all sizes. With regional disparities, fluctuating interest rates, and evolving investment strategies, understanding the mid-year landscape is crucial for smart decision-making in real estate investing.

Whether you’re just getting started or looking to expand your existing portfolio, here are the top trends currently shaping the 2024 real estate investment (REI) market to help you successfully navigate the peak season.

Interest rates and inflation: The Fed's grip

Federal Reserve decisions on interest rates continue to play a major role in the real estate market. Recently, higher-than-expected inflation reports have pushed treasury yields and mortgage rates up. Notably, the 10-year Treasury yield, which affects the 30-year fixed mortgage rate, increased for most of Q2, causing some investors to pause.

Recent reports show a slight improvement in inflation, though, which has led to a small drop in treasury and mortgage rates. This back-and-forth could impact borrowing costs, so staying updated on these changes is crucial for making well-timed investment decisions.

Regional market divergence: A tale of two markets

Real estate markets vary widely across the country. In states like Texas and South Florida, high resale inventory levels have returned to pre-pandemic numbers, indicating softer markets. On the other hand, places like the Northeast, the Northwest, and most of California still have low resale inventory, which provides fewer options for buyers and gives investors more optimism. Understanding these regional differences is key for strategic investing, as areas with high inventory might offer great buying opportunities, while low inventory regions could deliver better long-term appreciation.

Adapting to market conditions: Agile investment strategies

In a quickly moving market, adaptability is key. Instead of betting on big changes in interest rates, investors should focus on the current environment. Operating within today’s interest rate environment requires a pragmatic approach. Despite higher rates, many investors are thriving by adjusting their strategies. For example, one effective approach is buying properties at a discount, which can help improve cash flow, a tactic that is particularly useful in markets where prices have softened.

Properties are most commonly sold at a discount when they are sourced off-market, typically when the seller is under distress—for example, dealing with a death or divorce—and they want to forgo the traditional selling process that can include completing repairs, entertaining numerous showings, and paying costly agent fees. Additionally, many investors are recognizing the long-term benefits of property acquisition, and are holding real estate in appreciating markets.

Opportunities in high-inventory markets

Regions with high resale inventory, such as Texas and South Florida, offer unique potential for investment properties. Increased inventory can lead to more favorable purchase prices, particularly from motivated sellers. However, investors should remain cautious of potential price drops due to excess supply and lower demand.

Savvy investors can take advantage of these conditions by buying properties at discounted rates, setting themselves up for gains as the market stabilizes. A thorough understanding of local dynamics is essential for identifying and seizing these opportunities, so investors who are new to an area must take the time to understand the community before taking the plunge, lest they run into any unwelcome surprises.

Infill construction and new developments: Meeting demand in supply-constrained areas

Infill construction and new developments are hot, especially in supply-constrained areas. California, for instance, is seeing significant investment in infill projects. Programs like San Diego’s bonus ADU (Additional Dwelling Unit) initiative help increase housing density by allowing multiple units on residential lots.

This supports affordable housing and addresses supply shortages. North Carolina also stands out with robust new construction driven by strong job growth and available land. Markets like Raleigh and Durham are seeing increased building activity, accommodating the region’s migration trends and job market expansion.

Seasonal trends: Peak home buying season

Spring is typically the peak home-buying season, and this year was no different. However, some markets are showing unexpected softness. While there's no major trend in vacation home buying, the focus remains on primary residences and investment properties.

As we exit the peak home-buying months, seasonal slowdowns could create favorable conditions for acquisitions, as properties that didn’t sell during the busy season might be available at a better price. Exploring new strategies and staying flexible in approach can uncover unique deals.

Demographic drivers: Millennials and Boomers shaping the market

Demographics play a crucial role in shaping future real estate trends. Millennials, now in their prime home-buying years, are driving demand for move-in-ready homes. They prefer turnkey properties and want a hassle-free buying experience.

At the same time, Boomers are holding onto their homes longer, contributing to low supply levels. The average duration of homeownership has increased from seven years a decade ago to around 11 to 12 years today, reflecting both the financial challenges of moving due to higher mortgage rates and a growing trend of aging in place.

Investment tips: Seizing opportunities

Identifying and seizing the right seasonal opportunities can be an investor’s ticket to success. The summer real estate market offers a range of opportunities for first-time and small-scale investors. Whether through infill construction, leveraging regional market advantages, or adapting to demographic trends, investors can find success in this dynamic landscape.

1. Stay Informed: Keep an eye on Federal Reserve announcements and local market trends. Being aware of changes in interest rates and inflation can help you make better investment decisions.
2. Understand Regional Differences: High inventory markets may offer better buying opportunities, while low inventory regions might promise stronger appreciation. Tailor your strategy based on local market conditions.
3. Consider Infill Construction: In areas with limited land, infill construction can be a smart move. Programs supporting higher housing density, like those in California, can present unique investment opportunities.
4. Focus on Long-Term Gains: While cash flow is important, don't overlook property appreciation. In many markets, real estate values continue to rise despite higher interest rates.
5. Leverage Seasonal Trends: Look for properties that didn't sell during the peak season. These homes might be available at a discount, providing a great entry point for new investors.

Investors can confidently navigate this season by understanding regional differences, adapting to current market conditions, and capitalizing on seasonal opportunities.