Is Now the Time to Invest in Real Estate?
Hi Taylor - I’m wondering how this pandemic and the shutdown might affect real estate. Is it still a solid investment strategy, or should I stay away for a while? - Stan
Hey Stan - This is a great question as it’s pretty likely there will be some impact on real estate, but it’s not clear how hard we’re going to feel it. Unlike the 2008 crisis, our current economic woes aren’t tied directly to the housing market. Instead, buyers and renters will have to adjust to other factors that influence their bottom line.
1. Low interest rates. Rates were low before the pandemic shut everything down, then they were absurdly low, and now we’re bouncing between pretty low and very low. That’s a convoluted way of saying that it’s a solid time to refinance your mortgage. If you were already looking to buy a property, even if the price hasn’t dropped, you might be able to get loan terms that wouldn’t have been available a few months back. It’s a bit of a conundrum as the lowered rates won’t do much, if anything, to alleviate the jobless crunch, but it does make it easier for those with means to buy property.
2. Tentative buyers. Even with the awesome rates, it’s understandable that the number of interested buyers has dropped. There are plenty of reasons to be hesitant, among them are job security and an expectancy that market prices will go down. Since nothing is guaranteed, I don’t think anyone should hold off on buying a house they can currently afford. The lack of competitive buyers might be more in your favor than a drop in market value. However, with unemployment on the rise and industries still shut down, it’s hard to imagine that real estate sales and prices won’t take a dip in the coming months.
3. Renting market. This might be the area of most concern, because what happens to the renters market usually has an impact on all sectors. As waiters, bartenders, part-time students, retail staff, personal trainers, hospitality workers and so many more look for new jobs or start taking unemployment, we can expect to see a lot of apartments and rental properties become available. These vacancies would typically be filled by other members of the working class, but those prospective tenants are in the same boat as the ones giving up their leases. The domino effect of people losing their jobs and moving out of their apartments won’t take too long to reach the real estate market, since renters and buyers don’t have too many degrees of separation.
We don’t know how deeply we’ll feel this economic downturn, or how long it will last. From a real estate perspective, it’s good that the crisis isn’t directly tied to housing, but it would be naive to think the market will go untouched by this pandemic. Thanks for the question, Stan, and I hope your investing plans work out!