Is Now a Good Time to Buy an Investment Property?
Many interested in investing in real estate are wondering if now is a good time to do so, especially as competition is red hot in certain markets. Real estate has consistently proven to be a good investment because of its appreciation. On average, home prices have risen from 3-6% per year for the past 20 years, according to data analytics company Black Knight. Plus, if you plan on renting out your home, you can use that income to pay off your mortgage and even earn additional cash flow.
So, is right now a good time to start investing? While the answer to this question differs depending on the real estate market and your financial situation, experts say waiting could cause you to miss out on potential returns in the meantime.
Here are a few reasons why it makes sense to invest now:
Demand for Short Term and Long-Term Rentals is Up
With more Americans fully vaccinated, demand for short-term vacation rentals has shot up. So much, AirBnB CEO Brian Chesky said that the company needed millions of more hosts to keep up with the demand.
The long-term rental market is also experiencing a surge in demand as many Americans are having a hard time keeping up with the ultra-competitive housing market.
Rates Are Low
Mortgage rates are still at historic lows, keeping ownership affordable despite the recent increase in median home prices. While the uncertainty surrounding the pandemic has kept interest rates low, they are expected to gradually increase to 3.4% in the fourth quarter of 2021 and 3.8% in the fourth quarter of 2022, according to Freddie Mac’s most recent quarterly forecast.
Property Values Are on the Rise
If you’ve been following the real estate market, you know that home prices rose dramatically during the pandemic. This was due partly to a lack of supply on the market. According to PR Newswire, median home prices increase by 12.8% in 2020, compared to just 4.9 percent in 2019. While real estate experts predict that values won’t soar as quickly as they did during the pandemic, they will continue to increase. Recent reports from Zillow indicate that home prices will ease up, with a slower increase of 10.5% predicted for 2021. With tight inventory expected to continue, and more buyers expected to enter the market, price appreciation isn’t likely to end anytime soon. Meaning, if you’ve been waiting for prices to go down before considering an investment property, you might want to reconsider.
Experts Say We’re Not in A Bubble
Although the red-hot marketing has caused home prices to increase at a rapid rate, similar to what we saw before the housing crisis of 2008, experts say that we’re not in a bubble. The housing bubble that burst in 2008, causing crippling economic repercussions and lead to the Great Recession, was primarily driven by lenders extending credit to those who were not qualified.
So, even though home prices are rising at a rapid pace, there is one huge difference between now and 2008- Lenders have raised their requirements for securing a mortgage. As a result, average credit scores are higher, more documentation is needed, and loans are more proportionate to the borrower’s income.