I struggled with self-motivation and making meaning throughout the day; a battle I ultimately won.
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This week news surrounding pending home sales, interest rates, delinquency, and housing starts were the highlights. You can read the full post on BiggerPockets real estate investing blog; enjoy!
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Has the real estate investor officially returned to the housing market? A number of indicators point to the return of real estate investing including Move.com’s survey Real Estate Investors Set to Become More Active. Of course this isn’t really news. Investors account for 20% of the market according to NAR, a percentage which is trending down from 25% of the market towards the end of last year. The Move.com survey also states that 22% are bullish on price increases, half expect prices to stay the same, and 23% are bearish. So it looks like the consensus is a price flat line. I think the question is wrong. If the reason you’re buying real estate as an investment today is only for the price rise, you might be missing the real opportunity; buying for income.
Fundamentally if a property doesn’t have a strong yield and you’re buying only for the inevitable price increase, it may take longer than expected to achieve your price target. Over the last 2 years buying real estate as an investment has been treacherous. Many of us investors learned hard lessons from the crisis of just how illiquid real estate is. Today the rental market is robust and there is significant demand from outside the US for our real estate. These factors have buoyed residential investment property, leaving some still holding the real estate they bought 5 years ago in a better position.
The last 2 years have ushered in a new type of real estate investors, many brave new and experienced investors, but often new to real estate investment. I haven’t seen many stories on the investors that have been in the market over the last 2 years. Meanwhile people buying into real estate during this time have taken great risk knowing that prices are still in decline, financing is difficult, and the economy is sluggish. The trade-off is that short term price declines won’t affect the annual yield. The IRR might not be is strong when compared to a perfectly times bottom when the property is resold; but resell?
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Interest rates found another new low for 2011. The 30-year fixed rate eased from 4.61% to 4.60% for the week ending May 26th, 2011, according to Freddie Mac. A year ago the 30-year fixed mortgage averaged 4.84%. The 15-year fixed dropped from 3.80% to 3.78%. A year ago the 15-year fixed stood at 4.21%.
Softer rates are are result of slowing economic activity. While the rates are good for home buyers and lending, it hasn’t been enough to stimulate any major activity in the real estate market.
Here’s my latest chart:
As you can see the trend at the beginning of the year was up. I still believe this is the larger trend. A sluggish economy is to thank for recent pause in interest rates; just be advised that rates seem to rise much faster than they fall.
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