#293 Five Real Estate Trends in 2020

30 cities represent 40% of the population but 60% of all new job growth. Learn how this affects the overall rental market.

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Resources Mentioned on this Episode:

https://www.forbes.com/sites/ingowinzer/2020/12/31/four-trends-for-real-estate-investors-in-2020/#5dd3406d2797

https://www.flexjobs.com/blog/post/flexjobs-gwa-report-remote-growth/

Show Transcription:

Eric Worral: (00:00)
Hey everybody. Welcome back to another episode of RentPrep for Landlords. This is episode # 293. I am your host Eric Worral and today we are going to be talking about five trends for 2020 with real estate. Write a pretty good article from forbes.com and then a that one was actually titled “4 Trends for 2020”. But there was another one that I wanted to talk about, which is something that I’ve noticed that’s happening with a transition with the office and you know, the typical engagement that employees are having with their work and how that’s going to impact the rental market. All right guys, we’re going to get to that right after this.

Voice Over: (00:39)
Welcome to the RentPrep for Landlords podcast and now your host, Eric Worral.

Eric Worral: (00:43)

I’m feeling good so far this year and you know, about a weekend. I have most of my resolutions still intact. Trying not to be too hard on myself this year, but I figured I’d share with you guys how that’s going. I know that’s always top of mind this time of year. But one of the things that’s interesting is I listened to a podcast from me, a guy called Roy Williams, Monday Morning Memo, and he was talking about why he actually doesn’t put specific budgets and goals to things or timelines. He just has objectives. And he said that when you create a goal with a timeline, and this is very counterintuitive to a lot of things I’ve heard, I know I’m already going on a tangent for this week’s episode, but he said, when you create a timeline, it does hold your feet to the fire, but it also kind of gives you this anxiety and it makes you kind of hustle and maybe make decisions too quickly as opposed to creating an objective and then working steadily added every day.

Eric Worral: (01:40)
I liked that idea because I know that I’m somebody who will, you know, just create my own self imposed goals. And then if I don’t hit them, which a lot of times they’re pretty high goals then I’m disappointed and this is something that I’m going to be kind of testing out and kind of playing with and just figuring out the right mix of it for myself. In 2020 is I’m creating objectives and then working every day to improve and get closer to those objectives. So just something I wanted to share on that I picked up on a podcast I was listening to yesterday. So back to the tease of this episode. I talked about the five trends for real estate investors in 2020 so I read an article by Ingo Winzer from forbes.com and his is called Four Trends for Real Estate Investors In 2020.

Eric Worral: (02:22)
But reading the article kind of spurred a fifth trend that I wanted to kind of throw my own flavor on this. So one of the first things that he talks about is the greater concentration of demand. He said the US economy is always changing, but the concentration of new jobs and therefore new demand for housing. In a small number of big markets is something new. I didn’t read that very well, but he said the concentration of new jobs in a small number of big markets is something new. So basically they already know that most jobs are services or office jobs. What’s changing is that businesses that provide these jobs need more and more of the support services that are most efficiently delivered in big markets. So what he says is that it support personnel support office space. Most importantly, health care is more effective when they’re concentrated.

Eric Worral: (03:09)
So businesses tend to cluster in markets where these services already exist, which in turn concentrates the services even more, making the markets even more attractive. He said that just 30 markets where 40% of the population lives received 60% of the new jobs created in the last five years. The other jobs were pretty much evenly spread around the country. So that’s an interesting stat. I can leave out the 30 markets. It’s just saying that 40% of the population were 40% of the population is received. 60% of the new jobs. So you could say it’s almost like 50% more than what they should have received, right? Cause a 40% of the population should have received 40% of the new jobs. Well, they received 50% more than that, which brought them up to 60.

Eric Worral: (03:53)
So that’s shows a pretty, a big discrepancy. And where the new jobs are going because they’re just going into these 30 markets, which I’m going to go out on a limb and say Buffalo New York is not one of them. I don’t know where you are listening to this. But that’s just a, a, you know, a pretty safe bet on my part right there. So he said what this means for investors is that demand for housing and big markets almost certainly will continue to grow faster than builders can create more supply. In other words, prices will keep going up. And so we’ll rent, but you’re talking about, you know, the 30 biggest markets where this is happening. You know, you’re Austin, Texas and places like this where they have these hubs that businesses are going to, that are creating new jobs. The counterpoint to this.

Eric Worral: (04:33)
So I’ll already get to the trend that kind of sparked in my mind when I read this is one of the things that I follow is talking about remote work. So as you know, remote work is on the rise. People who may be used to working in an office place and are now working from their home. There’s six statistics on it about remote room won’t work in the US that I got from my flexjobs.com. And this is by Brie Weiler Reynolds and this was July 29, 2019. So pretty recent. And they said since 2005, remote work has grown 159% between 2016 and 2017 we’re remote work through 7.9% over the last five years. Remote work growth is at 44% over the last 10 years. Work remote has grown 91%. So 3.4% of the total U R or us population workforce, I should say, are remote workers, which is up from 2.9% in 2015. Now, those numbers don’t sound really large when you’re talking about 2.9 to 3.4, but really you’re talking to them about, you know I don’t know what the number is, but it’s probably they got 20% left or something like that just in a few years. So it’s at that forest point. 7 million people in the US currently telecommute often 3.9 million in 2015th

Eric Worral: (05:53)
So a lot of these trends are towards work. And you know, in my situation, like I work in the office and I also work remotely, but I’m in the same town of RentPrep, Buffalo, New York, West Seneca area. But from what I’ve read is that there’s more people that are interested in establishing work. So they go to this high cost of living cities. So maybe they go to Silicon Valley because they want to create relationships and connections in a high cost of living a city and they show value to the employer. They show that they can get the job done and then they decide they want to move to a medium or low cost of living city, but be able to retain that high salary. Is this something that’s happening more and more? I’ve I actually know a couple of people that went to San Francisco, came back to Buffalo and are making great incomes.

Eric Worral: (06:46)
They’re making San Francisco level incomes but living in Buffalo, which is a medium to low cost living city. So I bring this up because it’s kind of counter to what that trend was mentioned in Forbes where it’s saying that the top 30 cities are where all the growth is going to be. I do think their remote work is going to kind of fly in the face of that a little bit just because I think you’re going to get more and more people that are making a good income as the internet kind of opens up opportunities for everybody where you could live wherever you want. So I don’t think it’s just going to be about, you know, living in those 30 cities that are the high cost of living cities with a lot going on. That’s just my personal opinion. You know, I haven’t been asked to write for forbes.com yet, but I do think that remote work is going to continue to grow and that will be something that will have an interesting impact on your rental markets and real estate as people then can, are really not affected by where they live.

Eric Worral: (07:42)
And if you’re curious about that and you want to read more about that. I would just search the term Geo-Arbitrage and basically what that means. Arbitrage, you’re trading one thing for a higher value or something else. I could try to it comes from economic markets usually. But in this particular case, you’re talking about that example of going to San Francisco, getting a high paying job, leaving San Francisco, so your geo arbitrage to a lower cost of living city, but you keep that high paying income. It’s really interesting because then that person can then in that lower cost of living city live like a King because they’re making a great salary. Tim Ferriss popularized this in his Four Hour Work Week where he talked about moving to an entire new country where the cost of living is extremely low and living like a King in that way.

Eric Worral: (08:24)
So it’s just something to think about. But we will move on in the Forbes article. One of the things that talks about is slowing home prices. It’s saying that it doesn’t mean that prices can go up forever, although demand for housing and big markets will be strong prices of single-family homes have already peaked in San Francisco, Silicon Valley, Seattle, and are slowing in other markets as well. On average, our home prices were up 5% last year and he expects that there’ll be up just 3% in 2020. So this can mean different things for different investors. One of the things is that if you want to stay from investment in boom markets, consider apartments instead of single-family homes. The big question of markets that are peaking is what happens next. Boom, Mark is usually ended a bust and these might, but if the local economy keeps humming along, prices could just go sideways for years.

Eric Worral: (09:09)
The next trend that he’s predicting is a bigger cap between our gap between owning and renting. So we’ve actually seen this, you know, you, you hear a lot of people saying, ah, over the past few years that renting has become more popular for a couple of reasons, right? Millennials who grew up and got out of college and immediately hit a recession and are saddled with high debts with their student loans have trouble buying. There’s also the mindset of that person, right? They went through this recession, they’ve got this debt. Maybe they’re like, you know what, I am not putting my money into the housing market and buying a house because that’s not a safe bet. They just saw the crash in 2008. So that’s part of it. But this is saying that the surgeon home prices in recent years, especially in many of the big markets put a single-family home beyond the reach of more people.

Eric Worral: (10:02)
The ratio of prices to rents has always been high in markets like New York, San Fran and also applies in Seattle, Portland, Miami, Nashville, Charlotte, Boston, Denver, Columbus, Austin. So this is good news for investors and rental property but also means that it’s difficult to just buy a single-family home and rented out the number of people who could afford the high rent is small. A better strategy is in these markets to split a single-family home into several units. And even though that takes time and money, apartments are also a good idea, especially because rents will continue to rise even if home prices don’t. So that’s interesting cause I’ve never heard that before about the strategy of just looking at these markets, buying single families and turning them into multiple units. I guess that’s, if you’re, you can’t find a good a multifamily in that area, or they’re just priced way too high you can go with that strategy.

Eric Worral: (10:50)
So the next trend mentioned by Ingo the author of this article is that smaller risks in smaller markets in 2008, the crash exposed the weakness of the local economy in many smaller markets. So this is where unemployment soared and home prices fell. With a few exceptions, there hasn’t been much of a rebound in these markets, but that also means that there’s almost a no remaining downside to rental property. You can’t just invest blindly in these places. I’m still having high unemployment. Some have just one big employer may be a military base whose fortunes you must weigh. But in most cases, your economic risks are small, even if they’re even if very little growth is taking place. Basically, if it’s already bottomed out, you have less risk buying in an area that’s closer to the bottom cause there’s nowhere to go but up or sideways.

Eric Worral: (11:36)
Right? So I think it’s important to pay attention to trends because you want to know where things are going, where they’re headed. So we know that we see this right now if you go into, you know, most malls in America, they don’t look too hot, right? It’s because more people are buying stuff online. The interesting thing though is in 2013, if somebody said, Oh, e-commerce is going to be, you know, the big thing, only about 5.8% of commerce, in general, happened online. But the projections right now for 2020 are about 12.4%. So again that has nearly tripled since that time and they’re only going up. So if you can pay attention to these trends, especially ones that you think maybe have longevity in my opinion, remote work there’s going to be obstacles. There’s going to be things that are going to be hiccups along the way, but they’re going to figure those things out.

Eric Worral: (12:27)
And I think that the best talent is going to be the person who gets a job in the future. Not the person who’s the best talent within 20 miles of the business. So I think that it’s going to do the same thing as e-commerce has done and you’re just going to see a steady incline. It’s going to eat into an overall commerce sales. I think with remote work, where you’re going to see is that remote workers are going to eat into the labor force. And what that’s going to do is it’s not going to limit people to their geographic area anymore. People are going to have the luxury of living where they want and then working on their own time in more ways. So I truly believe in the next five years that that’s going to have a big impact on housing markets and where people live. And maybe it means less people living in Buffalo cause they don’t want to deal with the winters anymore. But who knows. It’d be interesting to see how that plays out. All right guys, thanks for humoring me as always and taking a listen to this podcast. So if you got some little nuggets out of it, thanks to forbes.com and Ingo for writing that great article and I look forward to catching up with you guys next week. All right. Take care.