After a huge increase of real estate prices during the pandemic, many of the Zoom towns are now seeing a massive slowdown in real estate sales. (Note: A Zoom town is a community that experiences a significant population increase as due to an influx of remote workers). Sure, the mortgage rates have increased from <3% last year to >5% recently so the real estate slowdown is universal. But zoom towns are being hit hardest due to the huge increase in prices and a good percentage of remote workers being called back to offices. Plus, some people are moving back to the big cities as they snap back to the action.
There’s also a bit of a speculative real estate bubble brewing in these zoom towns, whose home prices are less expensive. As shown in the chart above, Boise and Austin’s median home price went up around 50% from 2019 to 2021. AFAIK, the huge price run is not entirely based on real demand. There were a lot of real estate investors popping up during the pandemic. I personally invested in a real estate fund in late 2020. The fund focuses on buying up single family homes in the third- and fourth- tier cities/suburbs, and then renovating, renting and flipping these houses to make profits. The fund uses a lot of leverage. When the interest rate is low and house prices are increasing, it’s working great. I was able to exit the fund in February this year and made a handsome profit. I don’t know if they still allow redemptions but I imagine things are getting a lot harder as the rate increases and home prices stagnate.
In addition to real estate funds, people can now use websites like Roofstock to buy real estate remotely with very little hassle. It seems so easy to be a laptop landlord. All people need to do is to browse the website, select the properties, click, click, click and voilà, you are a home owner. Roofstock also helps with renting out the homes and when the right time comes, helps sell the homes. All people need to do is to make the initial investment and then it’s cashflow, cashflow and profit. This all sounds great. But like everything in investing, if too many people are doing the same thing, it will bring down the return and eventually people will start losing money.
The scariest part of all the real estate speculation is when all the real estate investors stop buying at the same time, we may get into situations tech growth stocks, late stage ventures and cryptos experienced earlier this year. The home prices could crash really hard in areas with high investor activities. But perhaps this is not a bad thing. Investors learn their lessons by losing money and people with actual needs of housing can buy homes at reasonable prices.