It’s important as a real estate investor to have a macro and micro-economic viewpoint of the real estate industry and its overall economic outlook. It can be hard to predict what will happen with the economy but economic trends give experts a lot of great data that can help shed light on the current and near future economic situation. The economic cycle repeats itself and it’s good for investors to understand where we are within an economic cycle.
Furthermore, it’s important to understand what is currently happening in the local St Louis market and how to prepare your business for the future. The St. Louis Association of Realtors and St. Charles Association of Realtors brought in Chief Economic expert Lawrence Yun, Ph.D. to better educate the greater St Louis and St. Charles market on the local and national state of the economy.
What is the current state of the St Louis economy?
According to Dr. Yun, we are currently in a positive economic state in St. Louis and across the country. Overall, jobs are being added and unemployment is less than 4% with historically low unemployment claims. There is a feeling of prosperity in St. Louis and throughout the U.S. Many individuals are experiencing a higher net worth and wages are starting to increase.
With the influx of more money, consumers are feeling confident and spending is increasing. St Louis job growth is up 5% while the national average is 13%. This trend in job growth is not as aggressive a change as other areas but it still represents a positive change. In conclusion, St Louis overall is pacing with national positive economic trends. It seems like St. Louis and St. Charles will be a stable real estate market for real estate investors throughout 2019 and into 2020.
What are the national economic trends?
Generally, it seems that 2019 will be a very economically similar year to 2018 nationally. According to Dr. Yun, existing home sales will continue to rise steadily and the average mortgage interest rate will stay around 4.6% as long as the federal reserve doesn’t get aggressive with rate increases. There will be some job growth across the US and unemployment will stay steady around 4%.
Dr. Yun believes that 2019 will still be a good year to invest in real estate and if an economic downturn is coming it’s likely going to happen after 2019. It’s always good to revisit economic trends yearly and see what the experts are predicting for the future. 2020 could vary greatly from 2019 and it’ll be important for investors to educate themselves on the state of the economy.
What does this mean for commercial investments?
Commercial investors have so many different options when it comes to investment options. It can be hard to know which avenue will be the most profitable. According to Dr. Yun, commercial real estate trends for 2018 and 2019 are all over the place depending on the asset class. Office space did not perform well in 2018 and it looks like it won’t be much better in 2019. Also, nationally retail has been suffering and many stores are going out of business. It seems that retail did not perform well in 2018 and it doesn’t have a strong 2019 outlook. Multifamily properties are getting returns but they are not quite as profitable as other commercial investments.
According to Dr. Yun, the two best performing commercial real estate asset classes are Senior housing and manufactured housing development. These are national trends and don’t really reflect the local market. St. Louis doesn’t have a lot of manufactured homes. Overall, commercial real estate seems more volatile over the different asset classes. Investors should be extra careful to vet commercial real estate deals and make sure it’s the most profitable way to invest their money.
What does this mean for Hard Money Lending to Rehabbers and Landlords?
With a positive outlook for 2019, it looks like it will be a good year for rehabbers who are looking to fix up a house quickly and sell as soon possible to take advantage of a good 2019. Like mentioned previously there are no guarantees that 2020 will be as good as 2019 so it’s good to take advantage of the market now and get in and out as quickly as possible.
For landlords, as long as you’re paying attention to cash flow and you know what the property will be worth fixed up, values should stay strong so if you’re using the BRRR method you should be fine with refinancing out the property.
Since the economy is looking strong for 2019, expect hard money lenders to be comfortable lending on quick rehabs in neighborhoods with strong retail comps and to be excited to lend to landlords. Since 2020 is questionable as to where the economy will be, they may be more hesitant to lend on larger projects that will go into 2020 or lend in areas where there aren’t strong retail comps.
In conclusion, real estate will be a great investment vehicle in 2019. Investors may need to be more cautious in 2020 if trends change. St Louis is very steady economically and there is a housing shortage. It will probably be a competitive year for investors looking to purchase homes due to the shortage.