Is real estate worth it now?
Whether you're ready to buy a home or dip your toes in real estate investing, the sector is seen as a solid investment because of steady appreciation and the ability to generate passive income through rentals. Unlike more volatile markets, real estate often offers more stability and predictability over time.
As a result of the Federal Reserve's quick interest rate rises, housing prices are shifting down from their 2020-2021 peaks. Investors in rental properties continue to enjoy historically low and reasonable interest rates. Real estate is a long-term investment with a favorable long-term prognosis for current investors.
NAR forecasts that sales will rise by 13 percent in 2024. “Housing sales are expected to increase a bit from this year,” agrees Chen Zhao, who leads the economics team at Redfin. “However,” she qualifies, “we are not expecting sales to increase dramatically, as rates are likely to remain above 6 percent.”
As mentioned above, stocks generally perform better than real estate, with the S&P 500 providing an 8% return over the last 30 years compared with a 5.4% return in the housing market. Still, real estate investors could see additional rental income and tax benefits, which push their earnings higher.
Diversification of Investment Portfolio:
Real estate offers diversification benefits, especially during economic downturns. It is an asset class that may not be as correlated with the stock market, providing a buffer against market volatility.
Real estate experts predict a continued housing shortage, and because they expect high buyer demand to keep pushing home prices up, 2024 may be an ideal time to sell. Experts also anticipate a leveling out of 2023's elevated mortgage rates, expecting rates to eventually settle around 6% – 7% in the spring.
On Friday, the National Association of Realtors reported that 2023 saw the smallest number of home sales in nearly 30 years. Last year was rough for homebuyers and realtors as a trifecta of forces made it harder than ever to buy a place to live. Or, at least the hardest in nearly three decades.
Despite some areas of the country experiencing monthly price declines, the likelihood of a housing market crash—a rapid drop in unsustainably high home prices due to waning demand—remains low for 2024.
Mortgage rates are expected to decline later this year as the U.S. economy weakens, inflation slows and the Federal Reserve cuts interest rates. The 30-year fixed mortgage rate is expected to fall to the low-6% range through the end of 2024, dipping into high-5% territory by early 2025.
In 2024, J.P. Morgan Research estimates 2–3% earnings growth for the S&P 500 and a price target of 4,200. “Absent rapid Fed easing, we expect a more challenging macro backdrop for stocks next year, with softening consumer trends at a time when investor positioning and sentiment have mostly reversed.
What is the 2% rule in real estate?
This is a general rule of thumb that determines a base level of rental income a rental property should generate. Following the 2% rule, an investor can expect to realize a gross yield from a rental property if the monthly rent is at least 2% of the purchase price.
1. Commercial Real Estate: Commercial properties, such as office buildings, retail spaces, and industrial warehouses, can offer substantial income potential, especially in prime locations with high demand. Long-term leases with businesses and corporations can provide stable cash flow.
The pros. Stocks are highly liquid. While investment cash can be locked up for years in real estate, the purchase or sale of public company shares can be done the moment you decide it's time to act. Unlike real estate, it's also easier to know the value of your investment at any time.
Yes, cash can be a good investment in the short term, since many recessions often don't last too long. Cash gives you a lot of options.
Because a decline in disposable income affects prices, the prices of essentials, such as food and utilities, often stay the same. In contrast, things considered to be wants instead of needs, such as travel and entertainment, may be more likely to get cheaper.
Although a recession isn't without risk to property owners, it does offer one key upside: Recessions typically hurt the housing market more than the rental market. Fewer people want to commit to the considerable expense of buying homes during a recession, so they opt to rent instead.
Since 1999, April has been the best month to sell a house in the U.S. Although June has historically been the month with the highest sales price, April is the month when most of these home sellers put their homes on the market. This is based on data that SoldNest has analyzed from the National Association of Realtors.
Inflation and Fed hikes have pushed mortgage rates up to a 20-year high. 30-year mortgage rates are currently expected to fall to somewhere between 5.9% and 6.1% in 2024. Instead of waiting for rates to drop, homebuyers should consider buying now and refinancing later to avoid increased competition next year.
Typically, the longer you hold on to your home, the better you will fare financially when it comes time to sell. Five years is generally considered a good rule of thumb in the industry, but it's not mandatory.
To get affordability back to a comfortable range will take a combination of higher wages, lower interest rates and stable prices, economists say, and that combination may take until 2026 or later to coalesce.
Why are houses so unaffordable now?
“It's hard to build an affordable home today because of high labor costs, high material costs, high land costs and high entitlement costs,” McCoy said. Entitlement costs refer to how expensive it is to obtain the necessary permits and approvals for developing property.
The rise of Gen Z homeownership
In fact, some Gen Z real estate trends are pointing in an optimistic direction. According to a recent study from a major real estate brokerage about 30% of 25-year-olds owned their own homes in 2022, 2-3% ahead of both millennials and Gen X at the same age.
Based on what we're seeing, our team of experts here at Heartland Builders believes that 2024 will be a good time to build your custom forever home. We have seen pricing and interest rates stabilize, and there is talk that the Federal Reserve may decrease rates this year instead of raising them.
Based on historical averages of 3.5% of home value growth per year, property prices will rise a total of about 18 to 20% in 5 years. The math is simple: 3.5% a year for 5 years, compounding annually. The key is to do the math as compounding because your home value will continue to build.
The state where house prices are predicted to be the highest by 2030 is California, where the average home could top $1 million if prices continue to grow at their current rate. Other states expected to see their average house price rise above the $750k mark include Hawaii, Washington and Colorado.
