Current market conditions give present homeowners the opportunity to build significant long term wealth, as compared to renters, or those that will buy in the future.
Interest rates, rent and home values are all projected to rise throughout next year and into the foreseeable future, and these factors impact our timetable as to when to purchase, or how long to delay a home purchase decision.
By entering the real estate playing field, you are creating opportunities that will potentially allow you to enjoy financial gains like a more comfortable retirement or the ability to pay for a college education. If investing in real estate were a game, now is the time to play ball!
For success in the real estate field, it is important to understand the main factors influencing prices.
Interest rates – the clock on low-mortgage rates is ticking. Most economists anticipate 5% rates by the fourth quarter. Overall affordability goes down as rates climb.
Low inventory – the supply of homes for sale in Denver has decreased each year since 2008. Supply levels are slowly improving and we will see a more balanced market over the next couple years. NAR’s May housing report stated that the average days on the market (until sale across the nation) is 66 days, compared to 27 days for Denver. This is fueled by the lower-mid price ranges.
Demographics – generational shifts with both Baby Boomers (ages 50-69) and Millenials (ages 20-34) are creating the largest influence on the market. Both groups are trending toward condo/townhome purchases in active urban settings. Millenials, for the first time, outnumber the Boomers according to the U.S. Census Bureau. Millenials represent over 25% of the nation’s population with 83 million, with the Boomers at 75.4 million. Many Boomers are empty nesters and/or keeping an eye on retirement. They are likely downsizing, but not necessarily moving down in price, as they desire a great location or luxury-type upgrades. The Millenials are leaving their parent’s basements (saving money) and/or are tired of paying the escalating rents. They understand the value of low interest rates.
According to the Federal Housing Financial Agency and the S&P Case-Schiller index, home prices have increased 20% nationally over the past three years (approximately 30% in Denver) and industry professionals “expect that trajectory to continue”.
As opposed to other investments that tend to fluctuate and carry higher risk, real estate provides the advantage of shelter and enjoyment, a tangible benefit. Over time, and even through two recessions, real estate has provided long-term appreciation at the highest level.
Any home purchase decision is highly personal, and potential buyers should consider factors like upcoming life events, job security and plans for achieving long term objectives. However, by entering today’s real estate market, a long-term investment ‘win,’ is in the cards.