Real Estate Investment 2024: What You Need to Know About Today's Market

Entering the real estate market in 2001 as a real estate agent, and transitioning to mortgage lending in 2012, I’ve witnessed the ebb and flow of the industry firsthand. My journey began with the purchase of my first home in 2012, a process marked by numerous challenges. My lender's expert navigation through these obstacles inspired me to assist young families in financing their dreams. Over my 20+ years in real estate, I’ve experienced significant market fluctuations, including interest rates ranging from a low of 2.75% to a high of 8.5%. Interestingly, the rates in 2001 were similar to today’s rates, around 7%.

The 2007 housing bubble burst due to lenders providing unqualified individuals with home loans, leading to the implementation of the Dodd-Frank Act. This act restructured financial regulation oversight and established the “ability to repay” and QM (qualified mortgage) rules. The aftermath saw a surge in short sales and market inventory, making the early to mid-2010s a buyer’s market. Buyers could purchase homes with minimal down payments, even 0% with a VA loan, often without using their own money. However, by the late 2010s, inventory shortages became a significant issue, exacerbated by the COVID-19 pandemic, which halted building permits and construction, drastically reducing supply.

To counter the economic impact of the pandemic, the government introduced substantial stimulus measures, leading to unprecedented inflation. The Federal Reserve responded by raising rates by 525 basis points over a year and four months to curb consumer spending.

The Current Market Landscape

Today's real estate market is characterized by higher interest rates, housing shortages, and record-high home prices. Additionally, there are concerns about a potential recession, rising unemployment, and the increasing cost of essential goods, with personal incomes not keeping pace. Given these challenges, why should anyone consider buying a house or an investment property? The answers lie in looking beyond the immediate hurdles and focusing on long-term benefits.

1. Buying a Home is an Investment

Historically, owning a home has been a profitable investment. Renting essentially invests in someone else’s property, which can be seen as wasting money. According to the Federal Reserve Board, homeowners have an average net worth 40 times greater than renters. Homeownership significantly contributes to personal wealth and financial stability. https://www.keepingcurrentmatters.com/2024/01/11/the-dramatic-impact-of-homeownership-on-net-worth

2. Affordability Will Improve

Though high interest rates currently limit affordability, they are expected to decrease over time, or incomes may rise to match the rates. When this happens, affordability will improve, likely driving home values higher. Examining local market forecasts can provide insights into expected appreciation https://www.corelogic.com/intelligence/us-home-price-insights-july-2024/. A housing bubble only bursts when supply far exceeds demand, a scenario not currently anticipated. https://www.nar.realtor/research-and-statistics/housing-statistics/housing-shortage-tracker

3. Opportunities for Savvy Investors

High interest rates and home prices motivate rather than deter real estate investors. Savvy investors focus on affordability and return on investment within their risk tolerance. The saying “Marry the house and date the rate” suggests that waiting for lower rates to buy a home may result in paying more for the property. The cost of waiting can outweigh the benefits of buying now and refinancing later when rates drop.

4. Diverse Mortgage Products

Innovative mortgage products exist both within and outside traditional offerings, catering to various buyer needs. These include low down payment and down payment assistance programs from federal, state, and local governments, renovation loans for those priced out of the market, and loans for self-employed borrowers based on business bank statements rather than net business income. Other products include debt service coverage ratio (DSCR) loans for real estate investors utilizing rental/ proposed rental income for qualifying the loan, and loans for individuals with low credit scores, derogatory credit events, non-citizens, and senior citizens. Additionally, attractive options are available for straightforward borrowers.

Bottom Line

Historically, home values have increased significantly over time, making real estate a lucrative investment. Homeowners are, on average, 40 times wealthier than non-homeowners. Opportunities exist in all market conditions, and high interest rates should not be the sole deterrent to purchasing a home. Affordability and risk tolerance should guide your decision. As an experienced mortgage professional, I can help you navigate current market conditions, introduce you to suitable products, and provide affordable solutions. To learn more about diverse mortgage products and how I can assist you in this challenging market, reach out to me today at [email protected] or 732-539-7190.