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Hot housing market will create plenty of new businesses

Just how many times have you read stories in recent months that talk about a hot housing market?

Well, to us, that’s somewhat old news. How many times are we going to write pieces on how the average price of new homes is going up and the sale price of existing homes is going up even further?

Yes, we know we have a supply and demand imbalance. For markets that are dramatically experiencing massive inbound population flows such as in Raleigh, Austin, Texas, and Nashville, Tennessee, the number of listed homes is on the decrease and the percentage of homes sold above the listing price is going up. Coupled with adamantly low mortgage rates, there’s no reason to believe things will change in the short run.

But what is beginning to change should offer hope to everyone looking for an opportunity to start a new business. Are you a good handyman? Are you an electrician? Did you go through turf management program at a technical college or a university? Are you an interior decorator? I can go on and on. Because a whole new generation of businesses are about to start in markets where the supply-demand curve is at its worst.

Why?

Finance: In the past two months, we are noticing some big deals focused on single-family housing. The latest, and perhaps the most relevant to date is the one that happened on June 22 when Blackstone Group (NYSE: BX), arguably among the most-influential investment houses, decided to pour almost $6 billion into buying Home Partners of America Inc., which owns 17,000 houses across the country. HPA buys homes, rents them out and eventually offers its tenants the chance to buy.

Blackstone’s move follows Canadian mega-investor Brookfield Asset Management (NYSE: BAM) buying more than 10,000 U.S. homes in 2020. Other big players such as J.P. Morgan Asset Management and Rockpoint Group in the past few months collectively have dropped billions on rental operators.

So what do these big deals have to do with new businesses?

These investors would need the home services support sector to maintain those rental properties. It is unlikely Blackstone, Brookfield and others will lean on the giant home services companies because of pricing. To generate the most return-on-investment, investors see two wins: their assets (homes) rise in value, and in most markets, they can jack up the rents.

But they have to maintain those houses, and keep them fresh and up-to-date. Those services will need to be performed locally by the small and medium-sized enterprises. People may think there are plenty of plumbers, electricians, lawn mowing companies, interior decorators and appliance maintenance companies – but there are not. The home services sector is a hodgepodge of skilled self-employed individuals, a small group of owners and large companies.

That should be enough for the folks reluctant to go back to the current workforce but possessing a skill that works on a house to go out and start a business. Then, they can start recruiting specialists from each sector that addresses all the needs for a house to remain in grade-A shape. After the team is set, reach out to these giant investors and pitch them on becoming their licensed agent.

If one looks at the U.S. Census numbers, one can see new business openings have been on a tear already during the pandemic months – a complete reversal from the situation during the Great Recession. University of Maryland economist John Haltiwanger’s analysis shows the number of entrepreneurs starting a new business hit a record high in 2020. And as housing continues to generate all the attention and the dollars from all sides, expect entrepreneurs to carve out a niche to monetize their skills.

Blackstone does not have time to mess with home services. They want a company that can perform every conceivable home maintenance work with one or two companies under a contract, perhaps initially as a retainer.

This capital markets interest may also generate interest among technical colleges to teach the youths these skills because there’s money to be made – and new businesses to incorporate.

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