Protecting Yourself In The 2016 Real Estate Landscape
By JD Esajian on January 15, 2016
Are you concerned about the future of the real estate market? If so, here’s how to stay safe when buying homes and investing in property:
So what is the outlook for the year ahead in real estate? What milestones and indicators should people really be watching? Do price fluctuations even matter to homeowners and real estate investors? If they do, how can they buy smarter?
Everyone should remember the lessons of the early 2000s, and stay alert. But that doesn’t mean allowing sensational and contrarian media to play with your emotions on an hourly basis. Here’s how to look at the different factors involved, and invest safely, no matter what’s ahead:
The Forecast for 2016
In sharp contrast to the stock market, real estate forecasts are 90% sunny, with many already toasting to a bright new year. Most analysts appear to be predicting very strong demand for housing ahead, which could produce even more sales than in 2015. Exactly how much home values will change over the year ahead will depend where you live and invest, but forecasts estimate ongoing modest and sustainable rates of growth.
Know Your Real Estate Cycles
To avoid making the wrong plays, it is important to know your real estate market cycles. Know your cycles and you’ll know where the market is, and will be.
So far, the U.S. housing market, and the housing markets of most developed countries, appear to continue turning on predictable cycles. They recover, boom, over-correct, and recover again.
Looking at historical data, housing values have continued to climb since as far back as they have been recorded. There have been some periods where they spike above, or fall below straight line growth, but they keep going up.
A lot of markets have returned to pre-recession levels. There are many which have not yet recovered, however. With this in mind, and considering the massive equity and low rates, most don’t see any sign of being overvalued yet. In fact, we still need to complete the recovery phase, before a real boom sets in. This will be evidenced by more relaxed lending, substantially more construction, and lack of affordability.
There may be a few markets which are pushing new highs, and where some say they can’t afford to live, but make sure you look at all the fundamentals and understand the emerging trends before making broad assumptions.
Factors that can Impact Real Estate
- Interest Rates – can impact affordability, but haven’t hurt demand in the past.
- Wages – wages may impact affordability more than other factors.
- Stock Market – the stock market will likely crash, and send more capital and demand into real estate before any issues in the property market.
- Rents – rents have almost consistently risen since records began.
- Demand – is the major driver of property prices and transaction volumes.
Do Price Fluctuations Matter to You?
Do home price fluctuations really even matter to you? If you are buying a home to live in for the next 30 years. it really makes no difference how low or high prices go in between that period. In fact, selling can be the worst move as you’ll be subject to either higher rents or higher home prices elsewhere. If you plan to sell exactly when you believe property prices may be in a dip, that’s something to think about.
How to Stay Safe
For the sake of the pessimists, the keys to staying safe in real estate are:
- Don’t speculate
- Buy what you can afford to keep
- Have an equity cushion that allows room to sell
- Choose fixed rate loans for long term holds
- Build up capital reserves
- Buy what you can add value to
Summary
There may be another dip in real estate values somewhere beyond the current horizon, but for now the outlook is bright. Those that invest in learning their cycles and factors will have the foresight they need to invest wisely. Few will really be impacted by price fluctuations if they are buying right, and don’t let emotion get the best of them. For those that really want to be safe – stick to the golden rules of smart investing and you’ll be more than fine.