There have been some incredibly dynamic changes in the last two years. The economy has had to overcome some massive hurdles with pandemic shutdowns and stay-at-home orders. We have seen unprecedented job losses and massive cuts to interest rates. However, for those in the real estate investment world, it has allowed many to grow portfolios at interest rates next to zero.
While parts of the United States were hit harder than others with job loss, Arizona has weathered the storm well. According to John Burns Real Estate Consulting, Phoenix has seen a rebound in new jobs that has exceeded pre-pandemic rates with year-over-year job growth at 6%. This paired with great interest rates has made 2021 a strong year for appreciation which is up 32.9%.
Single-family rents continue to rise as well. While rent growth has not kept pace with rising purchase prices, it has helped keep vacancy low on SFR rentals. The chart below prepared by John Burns Real Estate Consulting shows that it is currently more cost-effective to rent, rather than to purchase. This pushes people to rent longer. And because lifestyles have changed due to the pandemic, more renters are opting for single-family homes.
While no one can be sure, especially given the roller coaster that has been the last two years, there are some indicators that interest rates will rise to offset inflation. An article by Bloomberg recently stated, “Federal Reserve officials this week will quicken their wind-down of bond purchases and signal interest-rate liftoff in 2022, economists surveyed by Bloomberg said, heralding a historic policy pivot to counter the fastest inflation since the 1980s.”
There is no doubt that this will affect purchase prices as well as demand. But the gap between rent and purchase prices is significant. This means there will be the opportunity to increase the rent on your investment year over year.
Real estate has remained strong through the pandemic and continues to prove that it is a great place to invest for the long term. Finding deals may become increasingly difficult, but if you consider appreciation with the ability to lock in rates while rents continue to increase, it becomes a hard investment to beat.
by Michael Bennett, Atlas AZ