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Page 18 — Multifamily Properties Quarterly — November 2021 www.crej.com ARCHITECTURE BRANDING INTERIORS PLANNING ktgy.com 4552 SOUTH ULSTER Denver, CO | Legacy Partners I n the first quarter of this year, JPMorgan CEO Chase Jamie Dimon coined the term “Gold- ilocks moment” to describe the current market environ- ment. Why Goldilocks, you ask? Remember the porridge, chair and bed that were just right? Similarly, Dimon’s outlook coming out of the pandemic recession was that we would see fast and sustained growth with inflation and interest rates rising only gently, just the right amount to maintain a healthy economy. The drivers behind the Goldi- locks moment included a broad range of factors. In the first quar- ter, the vaccine was just beginning to become readily available. The expected successful rollout pointed to optimism that our world would start to open and we’d begin to see operations across business sectors approach normalcy. We also saw household and corporate savings reach an all-time high due to sev- eral factors, but primarily due to the influx of government spending into the economy. Historically low interest rates supported by contin- ued quantitative easing also helped to stabilize the economy at a much faster rate than we’d normally see coming out of a recession. As we close out the year, these predictions have largely material- ized and provide a continued posi- tive outlook for the economy, espe- cially real estate. The gross domes- tic product surpassed prepandemic levels back in fourth-quarter 2020 and continued to increase at an annual rate indicative of eco- nomic recovery and reopening of businesses (6.3% in the first quar- ter, 6.7% in the second quarter, according to the U.S. Bureau of Eco- nomic Analysis). While the delta variant of the novel coronavirus sent a surge in the infected numbers this summer, it didn’t curtail consumer spending the same way the first waves of the virus did in 2020. Savings have remained high with an excess of nearly $1 trillion going into the fourth quarter, as well as personal income approaching prepandemic levels. Spending appears to have normalized to traditional long- term trends, growing at a normal rate over the course of the year. With the $1 trillion infrastructure bill expected to pass by the end of the year and an additional $2 tril- lion to $3.5 trillion from the Build Back Better Act, these trends are expected to continue in the right direction. As we end 2021 and look toward 2022 armed with this data, the outlook for real estate investors is strong. However, like the Goldilocks story, we must choose just right and consider the fundamentals of real estate: selecting the right asset class, in the right market, at the right time. Construction and housing costs continue to point to multifamily as an appreciating asset class for investors. The supply chain diffi- culties for key construction materi- als look to continue through 2022, thus making new construction less attainable. Coupled with construc- tion costs, home values continue to increase at an unattainable rate. On average, United States home values have increased more than 17% since last year and are expect- ed to rise nearly 12% in the next year. Those numbers become even more apparent in smaller commu- nities as the de-urbanization trend continues and people migrate out of larger cities into quality-of-life focused places, specifically the Intermountain West region. Togeth- er, these factors lead to a lack of affordability for prospective home- owners and the need for rental supply. Location continues to be the guiding light of real estate invest- ment. The U.S. Census Bureau map highlights the country’s population growth while further justifying the price increases we are seeing across the Mountain West. This 2020 census data showcases the highest population increases happening in states within the Intermountain West region, and the pandemic just further acceler- ated that trend. After being con- fined to their homes for nearly a year, people are moving to loca- tions with easily accessible outdoor amenities and opportunities for increased living space. Over the last year, you can see that nearly all the fastest-growing markets are the smaller, suburban cities. The smaller suburbs of Ari- zona, Colorado, Utah, Idaho and Washington have seen upward of 20% increases in population, while the larger cities, such as Seattle, San Francisco and Los Angeles all experienced 3% to 10% decreases in population in the last year, accord- ing to an article from Bloomberg. We see a similar trend with the Intermountain West region experi- encing the highest percent increas- es in employment over the last year, according to World Population Review. To conclude with timing, the timing for investment is now. We currently are living in an opportu- nistic moment of time. The Fed- eral Reserve’s quantitative easing measures soon will begin tapering, which will cause interest rates to rise. Federal Reserve Chairman Jerome Powell stated in his speech at the economic policy symposium late this summer that “a gradual tapering process that concludes around the middle of next year is likely to be appropriate.” While we expect the increase in interest rates to happen gradu- ally, it could be the cold porridge that concludes our Goldilocks moment. s kevin.brinkman@brinkmanre.com Goldilocks and the 3 fundamentals of real estate Market Outlook Kevin Brinkman Co-founder & CEO, Brinkman Real Estate