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Is Now a Good Time to Invest in Real Estate?

by John Grace

That’s the question my son, his beautiful girlfriend of five years, and their friends are asking these days. My best answer about buying a house now is, that it depends on how you want to play the game. Since it appears that the U.S. residential prices are poised for a price decline, per Dent Research, if that possibility doesn’t bother you, buy away. If such a potential loss won’t help you have a nice day, you may prefer to keep your powder dry until 2024-2025, when it may be a better time to catch the next wave up. This time is completely different than the past in three significant ways.

  1. The median value of a home in the U.S. in 2000 was $119,600 in 2000, according to the U.S. Census Bureau. From the same source, we can see that the average home price today is about $428,000. That’s over a 3 fold increase, but the average household income is only up 1.6 times, per Dent Research. If that isn’t a sign of a completely unsustainable situation, I don’t know what is.
  2. It is difficult if not impossible, to see the future, but sometimes it makes sense to study the past. When bubbles appear, Dent Research asserts it is advisable to look into your rearview mirror as that may be the starting point of when the bubble was beginning to form. The firm’s proprietary research submits that this real estate market could be a bubble. If that is the case, real estate values could ultimately go back to where they were when the bubble started to form. Dent Research submits that the bubble started to form in 2012. As of right now, interest rates are hitting the highest levels since the 2008 housing crash. This equates to high mortgages and making real estate less affordable, this has already put pressure on the real estate market and started pushing prices down.
  3. Now may indeed be a great time to sell, but not at all a good time to buy. We are in unprecedented territory. Globally as of 2019, there are more people 65 and older than 5 and younger, reported the World Bank. The average age of going to heaven in America has dropped to 76.6 this year, according to the CDC, and the average age of home selling is 78, per Dent Research, while Boomers born 1946-1964 are turning 59 to 77 in three months. All we hear about these days is the lack of inventory. But it is irrefutable that Father Time and Mother Nature hold the trump cards. Simply put, people dying will outpace people buying homes. For those who say, they’ve seen everything, not one of us has witnessed 24% of the population going to heaven over twenty years. With 76 million Boomers passing on, and the number of homes remaining static, it is reasonable to this observer that supply may outweigh demand for home purchases and put a lot of pressure on rents. And when we study what happened in New York after the Great Depression, we are astonished it took about forty years for prices to fully recover after a 70% loss. At a time when the average American adult lived to 57 in the early 1900s. This suggests to me that a lot of wealthy people died with regret, the only gift that keeps on giving. The same scenario is playing out in Japan starting around 1990 to today, where home prices have yet to enjoy their highs 32 years ago.

Thanks to rising debt and slowing demographics after the Federal Reserve stimulated progressively over the past thirteen years, this time is different than any time you have witnessed. Only time will tell how much pain is necessary to cure the markets of their addiction to monetary easing. The ball in your court, however, is now may indeed be a good time to keep your powder dry to be able to blaze away at the proper time.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. There is no “right” time to enter or exit a market. There is no guarantee that the investment objective mentioned here will be met. John Grace is a registered representative with and securities offered through LPL Financial, Member FINRA/SIPC

Pam Vetter

Pam Vetter

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