When you want to expand your business and buy more rental properties, understanding current real estate trends is critical. Housing patterns can vary considerably from place to place and current events can change trends rapidly, but some general trends are at play that may be advantageous for your business.
Low Mortgage Rates
Mortgage rates in the United States have stayed low in 2015 and can be expected to do so in the future. The Fed has kept interest rates low because of precarious situations abroad, which means that inflation has also stayed low.
Many experts foresee a slight upward trend in mortgage rates, especially toward the end of 2015. A slow rise in mortgage rates could encourage many potential homeowners to finally buy. Unfortunately, if you're looking to buy more properties to rent, this could mean more competition for you.
On the other hand, since mortgage rates have been low for a while, some experts are describing the market as being "addicted" to low interest rates. If there should be an interest rate spike, mortgage rates can be expected to rise dramatically, which may suddenly price many buyers, including you, out of the market.
Decreased Lender Confidence
Many lenders are still very hesitant to lend to first-time homeowners, especially millennials. This is a direct side-effect of the Great Recession and the increased government regulation that's taken effect since. This generally affects families rather than businesses, but if your business needs credit to buy a property and hasn't proven its ability to turn a profit, you may find yourself in a tight spot.
Rising Real Estate Values in Some Cities
Many cities, such as New York and San Francisco, have seen real estate values skyrocket over the last several years, in large part due to the dramatic growth of the tech industry in those cities, along with rising incomes in certain segments of the market. As a general pattern, real estate values have increased most dramatically in the West, with the least impressive increases in the Northeast.
In these areas, many landlords have jumped on this bandwagon eagerly, charging extremely high rents for their properties. This market has also led developers to buy up old properties, knock them down and build high-occupancy, high-value apartment complexes in their place. While many municipalities are quickly passing laws to try to curb this activity and protect historic districts, still others are letting it happen in the hope that this new housing will bring young professionals to the city.
While it may be tempting to join the trend, this is definitely a real estate bubble. Many experts warn that these inflated prices will collapse in a matter of time, so beware.
Rust Belt Revival
Several cities in the so-called Rust Belt are opening themselves up to new investors, including Cleveland, Milwaukee, Pittsburgh, and Detroit. Though many of these cities have been risky investments for real estate companies for some time, the low costs of properties in these locations, combined with their excellent potential for growth and appreciation in value, means this could be a good time to get into these markets.
A Good Market to Buy
Except for the cities experiencing those stratospheric price increases, 2015 has generally proven to be a good year to buy property. The economy is strengthening, and the stock market is doing well. Also, while properties have been appreciating in value over the last several years, this trend has begun to level out. If you're thinking about buying new property, now might be the time. However, you may find yourself with some competition. Many analysts report that investors are leaving the market while millennials and traditional buyers are stepping up and becoming property owners for the first time since the Great Recession.
Increased Number of Homes
Experts report that there's been an increased number of single-family homes on the market of late. This means home prices are trending downward, and more and more first-time homeowners are moving into the real estate market — to the point where many builders are having trouble keeping up with demand for homes. As a result, you can expect to see home prices rise again shortly. You may chance upon a good deal on a single-family home in the short term, but you may find it more worthwhile to focus your attention elsewhere.
Low Gas Prices Mean Suburban Boom
Gas prices have stayed relatively low in 2014 and 2015. Assuming this pattern continues, it becomes much more attractive for people to buy and rent properties in suburbia and commute to work. Lower gas prices also mean buyers are more enthusiastic about getting their hands on new properties, so you could see slightly more competition from other buyers while gas prices remain so low.
Overall, 2015 has been a good year for the real estate market, and unless something dramatic changes, these trends should continue into 2016. Tread carefully, especially in cities experiencing a real estate bubble. Otherwise, this may be a good time to move into the market, thanks to low mortgage rates and other positive factors.
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