Is Real Estate a Good Investment Right Now?

Should You invest in Real Estate Right Now?

With interest rates seemingly fluctuating daily there is an all too common question lurking in many investors’ minds:

Should I continue (or start) investing in real estate?

Despite rising interest rates over the last couple of years, investors continue to pour money into investment properties. While there appears to be a slight change of pace in purchases, the trajectory remains the same: upward.

The majority of this post will focus on why now (and forever) is a good time to invest in real estate.  It would be prudent to not at least mention the rationale (or shed some insight) on why we continue to see this pattern.

Why Now is a Good Time to Buy Real Estate 

Is buying real estate still a smart idea in 2024? Most likely, and here's why.

Rationale 1: Inflation, Inflation, Inflation

Inflation is simply an economic term describing the general increase in prices of goods and services in an economy.  It typically represents a decrease in the purchasing price of the dollar with an increase in the price of goods and services.  A significant driver for the continued increase in inflation is the amount of cash or purchasing power (in the form of credit or home equity) that people have to spend.

In part, inflation comes down to a supply and demand issue.  More purchasing power due to increased money (demand) leads to a reduction in the availability of goods (supply).  This causes a rise in prices and the beginning of inflation. 

Now add the COVID pandemic, where the economy essential came to a standstill, necessitating the government to pour money into the economy and we see the result.  As the economy returns, people have cash, so they start buying and buying!  As a reference, approximately 80% of the dollars circulating have been printed since 2020!  That’s a lot of money that could be spent.

Rationale 2: Shortage of Houses

In simplest terms, a housing shortage boils down to the demand for houses, new or old, far outpacing the current supply.  Stemming from the 2008 recession, the government, banks, and developers all made building properties far more complicated.  This led to a status quo for available houses; however, the population of the US continued to grow. 

Once COVID veered its ugly head, everything came to a screeching halt.  So while we were able to get by with the available houses up till 2020, the lockdowns caused by the pandemic stopped or significantly delayed nearly every new construction.  The demand continues to be high, decreasing the availability of houses.  The housing shortage has been reported to have increased by over 1 million-units in just over a two year period (2.5 million in 2020 and 3.8 million now).

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Why Now and Forever Is Time To Invest in Real Estate

The end result: increased demand (higher population, more investors) and an already depleted supply (housing shortage) = overpriced and competitive market.

It may seem that now is a terrible time to invest in real estate.  Overpriced properties.  High interest rates.  Definitely seems like we should ride the storm until we return to normal economic times with normal real estate investing markets.

Here is the problem: We don’t know when that might be, nor do we know what “normal” will look like when it does occur. 

Think of real estate investing like the famous old Chinese proverb:

“The best time to plant a tree was 20 years ago. The second best time is now.”

Now apply that to real estate investing – If you hadn’t started investing 20 years ago, now is the best time to start!  We lay out 4 reasons why below.

Reason 1: Appreciation

Let’s be clear: it’s difficult to invest in real estate. 

However, that should not deter you from taking the leap and getting into the game.  Given a lot of economic uncertainty it’s important to ensure the numbers make sense and that you aren’t blindly investing.  Having a strategy when investing in real estate is the best way to set yourself up for success.

Much as the stock market is always on an upward trajectory, even despite years of negative returns, appreciation of real estate continues to be on an upward trajectory.  Looking back to 1891, US house prices have increased 3.2% per year.  That is even with the 2008 housing crash when appreciation was down between -4% and 12%, from 2007 through 2011! Most importantly, there is a strong correlation between inflation and home prices.  Suggesting that there will not likely be a change in appreciation of real estate.

Reason 2: Limited Commodity

Real estate is essentially a limited commodity.  Once all the real estate has been spoken for there isn’t necessarily a way to “build more”.  Buildings can be taller or bigger, but the actual physical land they are built upon can’t change.  As people realize the true value in owning real estate, more and more will seek out the investment.  It’s important to be ahead of the wave and start building your real estate portfolio now!

Reason 3: Mortgage Interest Rates are Still “Low”

For many, myself included, the thought of mortgage rates eclipsing 5% seemed unimaginable.  How were we supposed to continue to invest in real estate, knowing our rates could be 5%? Or 6%?

Unlike gas prices, where paying greater than $5 per gallon seems criminal because we’ve never seen gas prices this high, interest rates remain the lowest they have been in nearly 50 years! If we exclude the unprecedented last 10 years (2008 and beyond), we haven’t seen interest rates this low.  If you look back at a historical chart of 30-year fixed mortgage rates, between April 1971 and December 2007, the lowest interest rate was 5.31% in May 2003!  Rates actually got over 18% in the early 1980s!

Did you know Rent to Retirement offers some of the lowest rates on turnkey real estate investments?

Despite all of the previous years of higher interest rates, people were still investing in real estate!  It is impossible to predict what the future direction of interest rates will be.  We likely haven’t seen the peak given inflation continues to be on the rise.  Higher interest shouldn’t deter investors from seeking properties, especially given all the benefits surrounding owning real estate: tax benefits, mortgage pay down, appreciation, etc.

How will changing rates affect your investing? Read our full blog on mortgage rate predictions! 

Reason 4: A Place to Live

People will always need a place to live.  Unless we rapidly improve our abilities to live in outer space, then we are confined to living on earth – which means that real estate will always be important. 

Interestingly, the American dream of home ownership may not be as important to millennials.  From different mindsets, higher student loan debts, or even different lifestyles, millennials tend to prefer renting over owning. 

This change in lifestyle and mentality provides great opportunities when owning real estate.  As more people flock towards this newer way of living, renting of real estate becomes more and more important!

INVEST IN REAL ESTATE NOW!

Investing in real estate has been occurring for centuries.  It might not have been called “investing” but as societies transitioned from hunter-gathering lifestyles to an agrarian, the importance of land and owning the land became paramount.  Investing in real estate has been going on for centuries and it will continue for centuries.

This is why now (and forever) the absolute best times to invest in real estate are!

References:

www.techstartups.com

www.freddiemac.com

www.compoundadvisors.com

www.investopedia.com