Why Buying Real Estate Today Still Makes Sense
Real estate has been a topic of conversation on most people’s minds the last several years. From the Great Recession of 2009, through the years of post-recession stagnation and the decreasing volume of new construction, to the pandemic and seismic shift in real estate, causing prices to skyrocket, we have seen many markets in a relatively short period of time. Without those previous markets, we would not be where we are today.
Supply Shortages Driving Price Appreciation: Many regions are facing a shortage of available housing units relative to the growing demand for housing. Rapid population growth, urbanization trends, and limited land availability exacerbate this supply shortage. As a result, property prices are on an upward trajectory, presenting opportunities for investors to capitalize on potential capital appreciation. As homeowners committed to historically low interest rates through the end of 2021, even through the extremes of the pandemic, the market didn’t realize the monster being created once interest rates began to climb in 2022.
Homeowners locked in to low rates have been less apt to move and pay more for the sake of borrowing money. And buyers have been challenged with low inventory and higher prices and even higher rates, becoming a triple headwind when considering a purchase in a strong sellers market.
Steady Demand for Rental Properties: With homeownership becoming increasingly out of reach for many individuals, there is a growing demand for rental properties. Gen Z, in particular, are delaying homeownership due to factors such as high housing costs, student debt burdens, and changing lifestyle preferences. This sustained demand for rental properties ensures a consistent stream of rental income for real estate investors, making it an attractive option for long-term investment. Here in the Puget Sound, multi-family property with several units have proven a solid long-term investment for landlords looking to supplement their living expense with rental income from other units.
Shifts in Work and Lifestyle Patterns: The COVID-19 pandemic accelerated existing trends, such as remote work and the desire for more space, though shifts back to the office have begun. As a result, there has been increased demand for larger homes, suburban properties, and properties with dedicated office spaces or outdoor amenities. Additionally, lifestyle changes, such as a preference for walkable neighborhoods and access to green spaces, are influencing property demand. Real estate investors can capitalize on these shifting preferences by investing in properties that align with current market trends.
Supply Chain Disruptions and Construction Challenges: 2021 supply chain disruptions and construction challenges hindered new housing construction, further exacerbating the supply shortage, which is still being felt today. Delays in obtaining building materials, labor shortages, and regulatory hurdles have constrained the pace of new construction projects, even now in 2024. This imbalance between supply and demand puts upward pressure on property prices and reinforces the investment case for real estate as a long-term asset.
As would-be buyers continue to look at their options in the marketplace, it’s important to consider more than interest rate and instead focus on how the property fits their lifestyle. Rates can be refinanced, so focus on the home, and less on the rate, as market forecasts show lower rates in the coming 2 year cycle. Yet with that forecast could mean even higher prices as demand follows rate reductions and Generation Z buyers try to find their piece of the American Dream.
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