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The Era of Scarcity
In my two decades traveling the world looking for real estate, few periods have looked as promising to investors as this.
We are entering an era of scarcity for the right real estate. We saw this massive squeeze on inventory in the U.S. throughout the second half of the pandemic. You’ve seen this in person I’m sure…in your hometown. Especially if you’ve been looking for real estate to invest in, or as a place to live.
This shortage has seen home prices in the U.S. soar a whopping 44% over the past two years, according to Redfin. Now, America’s red-hot market is showing signs of cooling because of interest rate hikes and recession fears. This is expected. Short-term sentiment will ebb and flow…but look beyond the noise and the shortage of homes becomes clear.
Mark Zandi, the chief economist of Moody’s Analytics, estimates that there is a shortfall of 1.6 million homes in the U.S. A recent study released by the nonprofit research group, Up for Growth, gives a much higher estimate of 3.8 million homes. Still another estimate from Realtor.com, says America is short 5.24 million homes. Whichever figure you subscribe to, what’s clear is that this issue isn’t set to get solved anytime soon.
Part of the problem goes back to the last housing crash, which happened around 2008. After that, many homebuilders went out of business, setting home building back decades.
Then, there was the pandemic real estate buying frenzy…
Now, millions of millennials are entering their prime buying years, right as double-digit inflation is creating a material and labor cost headache for homebuilders.
Builders and developers face rising costs for construction materials, land, and fuel. Would-be builders can’t say for sure how much building something is going to cost…investors and financial institutions can’t loan builders money if they don’t know how much they need…
Worsening all of this, red tape makes it almost impossible to build homes where they are most needed. Zoning, permitting, and licensing all got put on hold, creating a backlog that could possibly take years to fully straighten out.
New-home construction hasn’t been this slow since 1995.
Bottom-line, there is still a real estate supply crisis that could take years to fix. Until then, real estate in the U.S. will stay unaffordable for many.
This is a major push factor for U.S. buyers—as well as would-be buyers who are now locked out of the market for years to come. Folks with contracts letting them “work anywhere” are picking up and moving en masse… They don’t want to compete in the crazy U.S. housing market when they can go overseas, seeking out safe havens, better weather, more space, a beach nearby, an airport close at hand… Put another way, they are in the market for a major lifestyle upgrade.
Of course, the supply squeeze isn’t restricted to the States. Most of the same factors that have caused scarcity in the U.S. are also at play in desirable destinations right across my beat. Inflation…supply issues…bottlenecks in bureaucracy…sky-high demand…
We’re entering what I’m calling “The Era of Scarcity”…
Scarcity makes real estate investment opportunities harder to find and increasingly rare in the developed world. That’s because in the U.S., where you find scarcity you’ll usually also find real estate prices and rents that are right on the limits of affordability. (There is a point where people can’t and won’t pay.)
But with the right deal in the right destination overseas, scarcity can play into our hands. It can be an asset that we use for our benefit…
That’s because we can still buy in places that haven’t reached the limits of affordability, meaning people can and will pay more as supply squeezes. That’s why we’re seeing such strong price growth for long-term rentals. And we have the advantage of being first, and locking in the most desirable real estate.
Members of my Real Estate Trend Alert group won’t be competing for the scraps with everyone else.
They can still buy well, by looking in the right places and using our RETA edge to lock down best-in-class properties at below market pricing…before this scarcity squeeze drives prices higher.
Record high prices in the U.S. and elsewhere will keep pushing people overseas. Remote workers, retirees and anyone who doesn’t need to stay put will choose Cabo San Lucas over New York City or Portugal’s Algarve over San Francisco.
And, this era of scarcity is already arriving on the shores of “our places.” My contact in the Algarve, Chris White, told me last week how his group’s total listings had tanked from 1,400 to 400 despite aggressive marketing to investors to relist their homes and condos.
And right around now RETA members are getting ready to close on condos in the jewel of Lagos. It’s an opportunity to own luxury condos at a big discount, of €53,000 and more. RETA members got in at €477,000…and I expect we can see up to €40,000 in annual income. That’s a gross yield of over 8%.
On top of that, buyers are looking at potential gains of €133,000 just one year after delivery…
The community will be built on the last great undeveloped piece of land in the most historic beach town on the Algarve, making this a truly one-of-a-kind opportunity.
Like I say, in these places the era of scarcity plays in to our hands because we can buy before the affordability squeeze, which will follow the supply squeeze, just like it did in the U.S.
Demand for long-term rentals is already strong and gaining momentum in Lagos, with the same constraints on supply—supply chain bottlenecks, bureaucracy, lack of developable land…
Over in Los Cabo, ditto. Recently, a mere 387 completed homes and condos and 430 preconstruction units were listed on the MLS. That’s less than half of pre-pandemic levels, and inventory was already tight pre-pandemic.
Contacts on the ground tell me the same thing; there are more buyers than product. As a result, it’s turning would-be buyers into long-term renters.
I have a condo in Cabo. I bought there in the Copala community at Quivira along with RETA members back in 2015. My condo was delivered in 2018. There is a big squeeze when it comes to long-term rentals…rates have jumped from $1,800 to $2,000 per month in 2018, to $3,300 to $3,500 today.
Scarcity is here to stay. The supply squeeze combined with the rising demand from the work-from-anywhere folks and the ever-booming short-term rental market across our beat means that in these desirable destinations prices are set to climb.
That places us in an exceptionally strong position. My million-dollar rolodex of real estate insiders, combined with RETA members group-buying power, means we’re still first in line for emerging real estate opportunities.
And quite frankly, the economic jitters we’re seeing across the world at the moment are playing into our hands. When the future is uncertain the value of fast sales is great to a developer. That means more negotiating power I can deploy on RETA’s behalf…
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