Image by: Diane Parkhouse
By Michael Sterling
The hype that real estate has gotten in the media being a booming market could very well be just that – hype. For decades, most people have looked at real estate with high expectancy of returns. It’s how people like Donald Trump made billions.
Real Estate is a great asset to have if you want to make investments. There is a real art to finding your golden ticket property. Location, renovation, size, etc.; but the market itself is a different story. The facts tell a much different story than what is in the media.
The Federal Reserve released a new plan called “Operation Twist.” This plan is supposed to lower the mortgage interest rates in an effort to boost our economy. Like many things that the Federal Reserve does, this once again will only put more money in their pockets down the road.
Lower Mortgage Rates Doesn’t Mean A Cheaper Property
When you have extremely low mortgage rates, more people will want to go to the bank and take out more loans to buy property. What does this tell the property seller? It tells them they can make the price even higher. What Operation Twist does is allow for much more expensive value in properties.
According to Michael Lombardi, author and creator of ProfitCredential.com, real estate is expected to recover and see a moderate growth this year, but reach a halt at the end of 2014. Since more investors are borrowing money to buy property, real estate sales are growing. However as the rates grow, the mortgages will likely follow – and in 2014, we will see it start to stabilize. Lombardi also predicts an upcoming recession event that will bring the market back down again. Basically, it will go up and then plummet.
However Lombardi’s colleague, Lisa Dey, financial expert and market prophet, has a different prediction. Dey says that the increased property values will make 2014 a great business for real estate. She doesn’t see a change, except for the better.
More Property Owners Will Lead To Fewer Properties
“Operation Twist” is going to make interest rates low for a while – probably until 2015. Last year, the average rate was 3.68% – an all time low compared to 2011’s 4.45%. Since 2010, inventory for houses have fallen 43%. In other words, in just three years nearly half of all homes homes for sale have been bought off the market.
Because the rate is as low as it is, first time home buyers are becoming more frequent and property is disappearing, which is leading to massive home construction. Experts say that in order to keep up with population growth, 1.5 million homes need to be built every year – however it has only been an average of 500,000 per year.
Fewer Properties Lead To An Increase Of Price
According to Corelogic, a leading provider of consumer, financial, and property information, in 2012 the prices of the average home increased over 6%. Experts are saying that it will double & possibly triple by the end of 2013. If there are fewer homes, it will make it difficult for you as an investor to invest in property, unless you have a bunch of money already to spend.
Partnering Up To Buy Property
A common trend that has been happening the last few years is the partnering up to buy property, renovating it, and then renting the property out to tenants. Lately, since the interest rates have been so low, there are less and less renters out there – which they soon find out. After all, why rent when you can buy for much cheaper?
The problem is when you’re renting a property, you have to oversee the property tax, fix problems when they arrive, pay for the garbage, and utilities if you want to gain someone’s attention in the market. A relationship like this, though cheaper for you, could take years to build into wealth. Since prices are going up, it is now taking longer to save to purchase the next property.