3 Reasons We’re Bullish on Real Estate
It’s no secret that real estate is in a bull market. Even so, there’s reason for investors to remain optimistic moving forward.
Since the onset of COVID-19, the real estate market has remained red-hot. At the start of the pandemic, this meant people moving to areas with more space where they could work remotely and have additional amenities. Though this has persisted, real estate prices in cities are also trending upwards. It’s clear that real estate is in a bull market.
Investors are wondering if the market is at its peak or if upside remains. The perennial question goes something like this, “is now a good time to invest in real estate?”
At Sundae, we’re bullish on real estate for three key reasons.
Low supply and high demand
Across the country, houses are in low supply. The home buying frenzy continues to keep houses in high demand. Collectively, low supply with high demand puts investors in an advantageous position.
Yes, pricing gains are moderating, but that doesn’t mean appreciation is out the door. Before the pandemic, housing price appreciation (HPA) averaged more than 5.5%. According to the AEI, HPA for September 2021 was 16.3%. This year-over-year change is unprecedented.
Part of every real estate cycle is a reaction to low supply and high demand where new homes are built. It’s really a matter of how quickly new construction ramps up to meet demand will impact HPA. There are an abundance of new building permits filed across the country, but not every permit filed translates into a construction start and not every start will become a completion. With the building industry facing obstacles including high material costs, supply chain issues, and labor shortages, it seems like the low supply of existing housing will persist into the future.
Given these factors, real estate will remain a highly sought after asset for the foreseeable future.
Real estate offers a hedge against inflation
In December of 2021, inflation rose to 7%. This marked the fastest rise since 1982, which has continued into 2022. Institutional investors are flocking to real estate as a safe bet with inflation on the rise. This signifies that there is still potential upside for investors and at the very least, security.
Again, running off of the current real estate supply and demand issue — there is a finite amount of real estate. Currently, the demand outstrips supply. Plus, inflation will continue to push up the cost of home construction as new homes are developed.
In times of economic uncertainty and high inflation, real estate serves as a reliable hedge. Real estate is a tangible asset, which makes it appealing in an environment of inflation. As numbers go up and prices for other needs go up, fixed monthly mortgage payments for previously purchased properties remain the same. At the same time, monthly rental prices for those properties may rise with inflation.
Investors are well-positioned against inflation with real estate.
Real estate has strong fundamentals
The Great Recession is still fresh on many people’s minds. With real estate as one of the primary factors leading to economic decline from 2007 to 2009, why is real estate a fundamentally sound investment?
It’s different from the last bubble. Unlike other forms of investing where there are low entry barriers, the real estate market is competitive. Now, only highly qualified buyers are winning offers. Unlike the years leading to the 2007 recession, buyers are either paying with cash or have high credit scores. This decreases the likelihood of default and the problems that come with it.
There are also historically low interest rates. As such, buyers entering the market will have lower interest rates than those that preceded them. Those who already owned are refinancing. Collectively, this lessens the financial strain property owners experience on a monthly basis.
Market trends for the win
Get an inside perspective on market trends that are impacting the market. Sundae’s lead economist Polina Ryshakov and CEO Josh Stech go deep into the reasons that they’re bullish on real estate. Watch the “Win Bigger” webinar to get important economic insights and learn how to employ winning investment strategies to grow your business.