It’s mid-October and our country moves ever closer to what could be the most contentious election of our lifetimes. We have already experienced one raucous debate and the legendary ‘October Surprise’ in the form of the President being diagnosed with COVID19.
Right on cue, volatility started to tick back up again in the stock market. Most investors would probably agree the increased levels of volatility could be expected in the coming weeks leading up to, and potentially following the November election.
So, where should investors look for more consistent, lower volatility returns? We continue to believe the single-family real estate market will continue to deliver strong, consistent, and repeatable returns.
In our last post we mentioned that as long as the supply of new-construction homes remains crimped, and demand from home buyers is firm, expect enterprising, disciplined fix and flippers in the right markets to make good returns (Almost a Year Later, the Demand for Fix and Flip Still Strong).
However, it is not only the low supply of new construction homes that is driving strong demand in the single-family market. Two additional developments are also creating strong demand – millennials entering the home buying market, and the migration away from large cities by the COVID19 crisis.
Back in July of 2018, we wrote a piece describing the positive effects on real estate prices as millennials were finally beginning to enter the home buying market (More Millennials are moving out of mom and dad’s place and buying houses – in the Midwest). Surveys show a majority of millennials – including the vast majority of renters – eventually want a home of their own.
Over the past decade, the cost of renting has skyrocketed in many markets and problem has been particularly painful on the coasts. As we wrote back in 2018, the Midwest is experiencing a mini-boom — and some of it can be attributed to Millennials seeking affordable places to raise a family.
It is the smaller Midwestern cities like Kansas City, Minneapolis, Indianapolis, Columbus, Grand Rapids, and Des Moines that are some of the fastest growing. The COVID19 crisis could potentially add to this migration. Families, and millennials looking to start families, may continue to move away from larger, coastal cities to smaller, more affordable markets.
At Aloha, we believe these factors (along with others) will help the residential real estate market continue to thrive, even in these turbulent and volatile times. All Aloha loans are collateralized by single and multi-family residential real estate, first position liens, and personal guarantees from sophisticated real estate investors. This combination is what has allowed us to deliver over 68 consecutive months of positive performance (and counting).