The real estate market is still considered to be in a recovery phase from the Great Recession and some are uncertain as to the right time to enter the market. So here are 4 signs that are tell-tale indicators when an appropriate time occurs to get into real estate in any geographical area. Although these indicators are gathered from generations of observing real estate, remember the number one (some may say it #2 or #3 but it’s up there) rule to investing …past market performance should never be solely used as an indication of future market performance.
1 – Increased Rents- rents on a national level have increased nearly 4% over the last year. Trading a taxed/nondeductible housing payment, rent, for a tax-deductible housing payment, a mortgage payment, is a “no-brainer” for many people. Along with that tax deductible interest from a mortgage payment goes the pride of home ownership and the hopes of gaining some equity in that property in the near future…benefits renting can not offer.
If you’re an real estate investor, you know that rents only go up when the community can support it and with improving job reports and increased wages across the nation, the general public can afford higher rents which mean better numbers for real estate investors.
2 – Low Interest Rates – This is a “welcome” mat placed out by the banks to enter and borrow money …and the money is inexpensive. And why not borrow to buy now?…especially when you can buy more home for less money. Example. The average price of a home is $300k and with today’s interest rate of 4% that equals a payment of $ $1,744/ month. While that same home at the interest rate of 7% from 9 years ago equates to a $2,388/month payment. (Payments are based on 30yr Fixed Mortgage) Not only can a home buyer afford more home with lower interest rates but more people can afford home ownership.
3 – Low Inventory – increased demand from new and returning buyers has caused a strain in the limited availability of homes for sale. In fact, many regions have reported a lower than normal inventory of homes available for sale. Lower inventory and an increased demand signal inflated prices to follow. Buy before the market prices become super inflated.
Many homeowners that are willing to sale their properties are waiting and watching as prices go up and are holding out for a dollar value that allows them a little more capital gain before buying another home or they perform a cash-out refinance based on the inflated values.
Without going into a full introduction into economics, history shows this possible future increased activity in the real estate market and extra cash in the hands of the consumers from selling and “cashing out” on inflated-value homes signals higher interest rates and/or even higher prices and then a market correction …or some people like to term a market crash. And we start all over.
4 – Increased Commercial Development
Look around your community. Is there any heavy commercial construction underway? If there isn’t any industrial type construction, is any land being cleared of trees or old buildings being leveled or sold? Commercial construction is started and buildings are erected because of the community has plans and expectations for the movement of people and resources. This means people will drive to and/or through a community and during that drive they will want to shorten their commute, discover and desire more modern communities, be attracted to work for new companies or just stop to shop and eat. The point is there is an expectancy of a influx of consumers to whom to businesses can sale or service and all of those people will affect the housing market.
Getting into the real estate market now will not guarantee huge profits and the benefit of quitting of your job tomorrow but with some patience, you will financially benefit from some basic economic principles of supply & demand and be a benefaciary instead of a victim of an often cyclical real estate market.