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The Impact of Shifting Economics on the Housing Market

The State of the Market

What a wild ride. The pressures of Covid, the war, rising interest rates, high housing demand and climbing inflation have put the Real Estate sale and rental markets on a run that we have never seen before. Some home owners have been cashing out and selling their rentals, but then the lowering of the stock market has thrown another wrinkle into things: where do they put their money? It may be a good idea to hold onto those rental properties that have positive cash flow, as in an inflationary market REIT’s have been popular, so it makes sense that property rentals would be in high demand as well.

With the rise of interest rates, the sale market should start to slow down as a higher number of buyers will be priced out of buying, forcing them to rent. The already limited supply of homes for rent coupled with the increase in demand will put upward pressure on rental rates. Those who already have rental homes, or turn existing homes into rentals should enjoy a strong market ahead. Most of our clients hold their rental properties with very low interest rates, so the rental income coupled with low holding costs will show a strong cash flow trend for most.

North Star Property Management is made up of a group of property investors, with the majority of the investments being single family homes. We are excited about the rental market ahead because positioned correctly, the continued positive cash flow is like a stock paying monthly dividends. With the Real Estate sale market looking to slow as mortgage interest rates climb, the rising equity growth should flatten but still remain positive. Even in 2008 during the housing crisis, our homes in the top locations had a flattening of growth curve, but not a negative curve.

One interesting trend that we have seen for a long time is that nearly every money manager we had talked to had recommended that we sell our real estate holdings and put the funds into the stock market. This sort of makes sense from their perspective, money managers hardly ever receive commissions on the equity growth or cash flow of their clients rental properties. As the economy is rapidly changing, we are excited to have strong and stable Real Estate holdings, and even more excited to help other folks manage their investment properties. The continued migration of people moving here looking for the Pacific Northwest lifestyle seems as strong as ever, bolstering the demand for rental properties in the Portland area.