Residential real estate has the potential to be a very solid investment over the coming years. All the factors that make it a good investment are coming together in a ‘perfect storm’ scenario. This may the opportunity of a lifetime for people to acquire a solid investment at an attractive price.
Since real estate prices topped out in 2007, they have come down significantly. In some markets, the values have come down by 30 to 50 percent. Even with this decline, prices are still above the price levels of 2000. In most areas, the values of homes are still about double what they were in 2000.
Currently, real estate prices are still attractive and have the potential to increase, once the foreclosures and inventory of unsold houses has been worked through. There are several reasons why home prices are likely to increase in the coming years:
They include a decreased number of new homes being built, a steadily increasing population and the pent-up demand for housing units. Additionally, deferred maintenance is lowering current values.
Low interest rates
Interest rates on home mortgages are at the lowest rates in a generation, particularly for a 30-year fixed rate mortgage. This means that the monthly payment on a 30-year mortgage is more affordable than it has been for years, and those that can afford to take advantage of it can buy more house for their money.
Many economists concur that the potential of higher inflation in the future is almost a certainty. The high budget deficits that are currently being run by the federal government can only be repaid in two ways. Higher taxes to raise government revenues are almost a certainty, but the amount that taxes can be raised is limited before high tax rates become counterproductive. The other way is to monetize the debt, which means that the government prints money to pay off the debt. More money in circulation causes inflation as it devalues the currency. Gold and real estate have always been touted as good inflation hedges.
With these three factors, low prices, low interest rates and the likelihood of higher inflation all coming together in a financial ‘perfect storm’, now is a practical time to by real estate. Since people will always need a place to live, no matter how bad the economy, residential real estate is a safer investment than commercial real estate and a better investment.