21 George Investors Looking into 2017

As 2016 comes to an end, the transition into the New Year is always a good time to set business goals (and personal goals too!). Will your resolutions make it through to at least January 31^st and help you take the steps needed to achieve our goals? It takes some work to strategize on how to achieve those goals.

This is also a good time to reflect on the past year and evaluate the political, economic, and social challenges facing us in the New Year that may affect your business (in our case, multi- family real estate investing.) With a new president entering the Oval Office stirring political and social debates, and the Federal Reserve raising interest rates to end the year for the first time since December 2015, there is certainly a lot to keep an eye on in 2017.

Come the Presidential Inauguration on January 20^th all eyes will be on President-Elect Trump…and on our Twitter feeds. The Market has been on fire since Election Day but many investors are questioning how long this momentum will last. While investors are still questioning future performance of financial markets after a few strong months, the Trump nomination has not changed the mind of many bullish multi- family investors. Trump’s pro-business agenda is expected to spur job growth. He and his team plan to invest in the nation’s infrastructure. These, along with Trump’s real estate background, have strengthened many multi-family investors’ outlook heading into the New Year. As to other policy signals, his policy towards immigrants, a large rental demographic in any market, is certainly something to keep an eye on.

With the Federal Reserve hiking rates this month and anticipating a few more hikes in 2017, it is déjà vu all over again. With the previous rate hike in December 2015 coming with a similar announcement of more hikes throughout this past year, the Feds had us wait until the last month before they raised interest rates. With the economy maturing over the past year this announcement has a little more weight behind it.

So how will rising interest rates affect multi-family real estate? With interest rates inversely affecting cash flow, we can expect to see cap rates rise, slightly devaluing assets. However, after seeing the most new multi-family housing units come online this past year since before the recession (most being in the luxury class), rising interest rates make new development more costly and less feasible. Due to the strong rental demand a majority of the new units were absorbed in 2016 leaving the national occupancy level relatively unchanged. With the high absorption rate and new construction becoming more costly, along with demographic trends still pointing towards strengthening demand for the rental market, supply and demand still favors a tight rental market making multi-family assets as valuable as ever.

Much of the strong demand driving the rental market comes from the Millennial Generation. While we are still in the midst of the Millennial Generation graduating college, joining the workforce, and continuing their generational shift towards the rental market, it is important to monitor this shift heading into the New Year. With college seniors graduating into the healthiest economy the Millennial Generation has seen as professionals, many expect more to find high paying jobs sooner upon graduation. The question remains whether this will lead to more of them choosing homeownership at a younger age. The job market may be improving, but due to Boomers staying in their jobs longer Millennial’s are unable to climb the corporate ladder to higher paying jobs as quickly as previous generations, leaving them in lower paying jobs longer, sometimes with a mountain of student loans. Millennial’s are a generation that is expected to be less fortunate financially than their parents. Marry that with their trend of opting for a more flexible lifestyle, seeking lifestyle over career, and it looks like the Millennial’s will likely continue to drive rental demand for years to come.

It is important to monitor the landscape of the world we live in on an annual, monthly, weekly, even daily basis to see how it affects out lifestyle, careers, and investments, and luckily for multi-family investors, all signs point to another strong year in 2017.