March 10, 2022
Joe Fairless

How the Great Migration Could Affect Your Investment Portfolio

Since the beginning of the pandemic, the workforce, housing, and financial market have all seen drastic changes. Starting from the first quarter in 2020, unemployment rates and job losses skyrocketed. Meanwhile, mortgage rates all over the country dipped to ultra-low numbers. Census data reveals that there have been huge demographic shifts throughout the country, with one of the most significant being the Great Migration from large metropolitan areas to up-and-coming cities in the South.

People began relocating from popular cities such as San Francisco, New York, and Los Angeles and opted to move to booming cities like Orlando and Austin. For the first time in decades, the state of California lost nearly 400,000 residents. And in 2021, the number of people moving to the Golden State dropped by a whopping 38%. And that’s just one example of the Great Migration affecting the most populous state in the country.

Relocation is solely one development that happened as a result of the turbulent economic climate. The Great Resignation also changed the nature of the market. The number of people who quit their jobs hit a new high in November of 2021 when approximately 4.5 million people resigned from their positions to find better jobs. According to the Bureau of Labor Statistics, 3% of the workforce voluntarily quit their careers, and there are still no signs of slowing down as we hit the first quarter of 2022.

Additional information regarding this sector shows that the most prolific resigners were mid-career professionals. Still, private job growth rose to its highest levels. Unemployment rates have steadily been lowering, and labor force participation has risen overall.

Now that we’ve examined some of the most significant changes in the last two years thanks to the Great Migration, how have all of these changes affected the investment process? Have Great Migration patterns affected the guarantee of future results? And should these factors change your investment strategy? Keep reading to learn some important information and financial advice on how the Great Migration may affect individual investors.

1. Great Migration patterns affected inflation rates.

Economists studied migrants’ patterns throughout the prior year, and rapid economic growth has been surging along with inflation. The United States Bureau of Labor Statistics recorded the largest jump in inflation at 6.2%. This is the quickest pace it has risen since the early ’90s. The rise causes several issues in the world of investing and mutual funds.

Rising inflation rates typically decrease purchasing power within the stock market. It’s hard to guarantee your financial future when input prices are a lot higher than their original cost. Inflation is a sneaky threat to financial investors typically because it can chip away at their returns. This is a good reason to shift focus to a real estate type of investment instead.

Compared to stocks, there is more stability and economic opportunity in real estate. In fact, if you’re on the fence about commercial real estate, it’s a good time to evaluate the diversification of your current portfolio. Even with higher interest rates and inflation in the United States, the economy is continuing to expand. Overall, investing in real estate is still very favorable in terms of attractive growth prospects. More importantly, when evaluating performance data, commercial real estate typically provides a hedge against inflation.

2. Commercial real estate is booming and sees a lot of competition despite remote work.

Thanks to remote job opportunities, more people in the workforce have been moving out of urban areas and big cities in order to relocate to Southern states like Texas, Florida, North Carolina, and South Carolina. Migrants are choosing to forgo their small spaces and opt for homes throughout the U.S.

You might think that because offices and Los Angeles and New York are sitting empty, commercial real estate may be suffering as a result of the migration. But just because jobs are moving to different parts of the country and people are working from home permanently, it doesn’t necessarily mean that economic opportunities in commercial properties have shifted.

Any good investment advisor will tell you that investment activity in commercial real estate has actually started to flourish in 2021, especially when it comes to multifamily investment products. In fact, investment decisions and attractive financing options due to mass movement in 2022 may lead to a 5%–10% increase in overall activity. When it comes to investment objectives, multifamily deals are still a great path to profit considering past performance. Just keep in mind that commercial real estate is on everyone’s radar. You will see a lot of competition without professional help.

3. Market volatility has little effect on real estate investment.

Looking at the Great Migration patterns and the economic climate, it appears that this is currently the most unusual market in modern American history. There’s a labor shortage, yet there’s rapid economic growth mitigating the effects of the pandemic. And there are more home buyers than there are single-family homes. Some U.S. historians look at these large numbers and state that this is simply a pattern repeating itself.

Overall, these changes have made real estate investing more attractive. When you consider the housing shortage, it’s clear that investing in real estate provides a better return in comparison to the financial market. Your financial goals should revolve around generating passive income through long-term investments. Real estate is now outpacing inflation and allowing people to build equity even if they’re living in large cities like New York.

Even with employers experiencing staff shortages, jobseekers finding higher wages, and rates of migration increasing, real estate has had a historically strong performance. The demand for multifamily housing alone is growing as the demand for these properties is climbing at an even faster rate than single-family home prices. With robust growth, you may want to make commercial real estate investments a part of your retirement plan.

About the Author:

Annie Dickerson and her partner Julie Lam are founders of Goodegg Investments — an award-winning real estate private equity firm — and creators of the Real Estate Accelerator Mentorship Program. They are authors of the book Investing For Good and hosts of the popular Life & Money Show podcast:

Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.

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