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54 exemplifies effective rental property investing may prove less resilient in today's economic landscape than in the past, especially if we try to apply lessons learned from 2008. Whereas past rental booms amid housing market depressions were primarily fueled by foreclosures forcing a transition to rent, today's mismatched supply and demand instead place downward pressure on rental prices as the rentals' value also falls. Renters can leverage the threat of leaving the property to buy their own. Sufficiently motivated renters can now access a newly-created pool of desperate sellers who need to offload portions of their holdings. In effect, the possibility remains omnipresent and at the forefront of owners' minds despite prospective buyers not actively buying new properties; the scales are tipped heavily in the favor of tenants. is negative reinforcement suppresses any rent increase that could come close to offsetting inflation for owners. e new renter/owner dynamic increases the risk of downside move- ment in average rental prices as inflation reduces the real value of that cash flow, and ongoing supply chain issues increase maintenance costs for owners and managers. PRICING PROGNOSTICATION So, what can we expect in the future, even in the short-term? As 2021 was a clear seller's mar- ket, we're transitioning into a distinctly buyer-bi- ased market. But we're not there yet. Although home prices flatlined and began a downward climb, they haven't yet broken into negative territory. Few (if any) pre- or mid-pan- demic buyers are underwater on either their home or investment properties. Stagnation will be the watchword over the coming months. Investors and prospective buyers alike will wait with bated breath to see a flip into buyer's market territory precipitated by values dropping close to zero or even dipping into the red in some sensitive markets. is waiting game is a tricky proposition for many investors and buyers, who are sitting on enough dry powder to leap into the market when conditions are right. Still, inflation is reducing the value of that war chest daily, and some fixed-income investments are increasingly attractive as alternatives to waiting for housing. Owners are also in a tight spot, as falling prices have impacted net portfolio values. Declin- ing balances make the continued maintenance of assets risky, especially for highly leveraged accounts. Eventually, conditions will be so bad that they must sell to the droves of buyers waiting in the wings. Ultimately, this creates a stand-off between buyers and sellers, each waiting for the other to blink in a national game of chicken that will only materialize after a long period of stagnation anxiety. HEDGING HELPS: HOW DERIVATIVES CAN OFFSET LOSSES AND IMPROVE ACCESS Today's world, while chaotic, is also more technologically-driven and innovative than ever. Moving forward, a likely outcome of the turbulence in housing combined innovation is an opportunity for increased access to derivatives as either a hedge for real estate portfolios or as speculative assets. Firms are already offering index-based home price futures contracts, and futures options are seeing a spike in user count, and subsequent con- tract transaction counts. e critical factor in the broader adoption of these financial instruments to pad and buffer flagging markets is better youth and renter awareness of products. Sellers of these derivatives are a captive audi- ence. Owners hedging their capital gains in value appreciation, flippers sensitive to a rapid decline in pricing, and even construction firms on a fixed 12 to 18 month timeline all need futures and similar products to balance their risk. e buy-side of the equation still has room to grow. As a broad class, young professionals and renters don't yet have the means to buy a home, and that ability will decline if economic condi- tions worsen. e lack of equity (financial and social) cuts these classes off from the idealized conception of home ownership and generational wealth, which is bad enough, but also denies access to shorter-term gains as liquidity as home inevitability stabilizes and creeps back upwards. Because of how these contracts function, access to home price index futures allows buyers to invest in and manage slices of home equity— much like fractional investing lets anyone buy a portion of Apple or Microsoft stock, for example. Participation in the futures market allows renters and others unable or unwilling to purchase prop- erty due to life circumstances or lack of interest to capitalize on housing with decidedly less capital and risk. After the past few years, there is undoubtedly some investing fatigue in less-experienced or less financially savvy Americans. Despite this, using home price indices as a stable alternative to the whipsaw equities market is an exciting proposi- tion that market makers and firms offering these products must move on. Expansion of these futures markets serves a dual purpose of increas- ing equitable access to wealth-building strategies while stabilizing the housing market as more market participants buoy prices and reduce vola- tility by closing the bid/ask spreads on contracts. CONCLUSION Hindsight is 20/20. Nothing is set in stone. We can't predict the future. is set of simple platitudes has never felt as applicable as they do when applied to the past two years and the immediate future. Despite this, while not guaran- teed, the odds are good that we have yet to see a bottom in the housing markets. Rate hikes may slow but are unlikely to stop in 2023 and are even less likely to come back down. is snowball ef- fect on mortgage rates, coupled with inflation and supply chain woes, means turbulence in housing is all but guaranteed. e fall and winter of 2022 saw the broad housing market pricing downturn begin. We're likely to see a further leg down before an eventual flatlining as potential buyers and unwilling sellers have a proverbial staring contest to determine which direction cash reserves flow. In the meantime, investors and homeowner hopefuls can take advantage of new, innovative products that hedge against market downturns and provide equitable access to previously marginalized communities that are historically denied the chance at generational wealth through home ownership and equity. In the end, nothing is guaranteed. For investors, owners, and buyers alike, patience, education, and a cautiously opti- mistic attitude is the best course of action. Louis Amaya is the Co-Founder and CEO of PEMCO Capital Management, where he is responsible for acquisitions, trading, portfolio management, and operations. Feature By Louis Amaya

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