I came across Barbara Corcoran’s post, and it struck me.
Barbara is basically describing the return of the good times very similar to what I have said recently.
We both agree – it’s not going to be anything like most people in the media want us to believe, but more like a high-pressure weather system; one that will bring sunshine back to property purchases, lower the interest rate of mortgages, and allow many many more people to buy their first home or a bigger home.
Compare that to what we have seen the last few years.
What do you do if you would like to start a family, looking for more space, need an office for yourself and one for your partner/spouse, because you both work from home since 2020?
- If you looked in 2020 just before the pandemic you would have found a nice 3-bedroom, 2 bathrooms house for a reasonable price (by today’s standards) and a mortgage as a first-time home buyer for less than 3% interest, fixed for 30 years.
- If you looked in 2021, you could have found that same house for 20% higher price but about the same mortgage interest rate, so your monthly payments would be slightly higher.
- If you looked towards the end of 2022, the price for that’s same house would have gone up another 10% – 15%, but in addition, interest rates would have gone from 3% to 6%. Your monthly payment would start getting out of reach.
- If you looked in 2023, that house would have been 40% – 50% more expensive that in early 2020 and with max interest rates of 8%, you would be unable to even qualify for a mortgage.
In addition, banks and other lenders are in a lot of trouble due to the collapsing commercial real estate market so they added all kinds of hurdles and requirements if you even wanted to give it a try to qualify.
So as a homebuyer you did not really have much of a chance but to rent.
Rents have gone up a lot as well the last few years, but you can still keep renewing your lease.
What if you are a real estate investor, while you are renting?
Well, here are the 7 reasons why now is a great time to invest:
- Qualifying: As you know about your own situation, very few people can qualify for loans as long as interest rates are very high – so good deals with good rents are perfect for investors. Investors look for performance as a combination of cost (including interest, insurance, management, etc.) and rental income.
- Performance: Lenders always lend on good deals and judge based on the performance of the deal – how good is the ratio between monthly expenses and rental income? For you as a buyer to occupy they judge on your credit score and income. Investors are favored.
- Competition: If the people would like to buy but can’t afford it or qualify it, investors can negotiate because there is very limited competition from buyers who want a property to move in themselves
- Rates have started to come down in anticipation of coming FED rate reductions, so deals have gotten better
- Investor Strength: Rents keep going up due to limited supply and people not being able to qualify. As long as renters can’t become owners investors are the only game in town, and the agents, sellers, and lenders know it
- Time Pressure: New construction built by developers needs to get into the market. Developers have been waiting but they can’t hold on any longer, so they give free closing costs, buy downs of interest rates, etc. To investors just to sell and get money to build something else.
- Refi-option: Not an immediate reason but knowing that we as investors can refinance when the rates have finally come down make current prices and rent-to price ration acceptable as long as there is at least some positive cash flow – in a few years we can refi-and get even more cash flow.
How long will things remain this way?
People ask Barbara Corcoran her opinion about the impact of coming interest changes to the real estate market. She keeps repeating what I have said many times as well:
“While the media and other gurus claim that there will be a severe correction due to affordability, I think the markets will explode as soon as we see mortgage interest rates starting with a 5.xx% and even more so if they get to a 4.x%-handle. There is so much penned-up demand from people who have been waiting for years to get into ownership but could not qualify, they will flood in as soon as they can again qualify. Obviously, prices will increase further and not go down.”
The window will slowly close and pressure of would-be home buyers entering the market will increase, just like Barbara Corcoran and I predict but for now, anybody interested to invest should get busy and take advantage before conditions change and investors are back to competing with first-time and other home buyers for the best deal.
As prices will be pushed up the probability that we can find good deals that pencil out will decrease every month going forward.
I’ll be happy to help you and share our inventory of well-performing properties.
If you’d like to look into well-performing properties, inquire here
