Should I wait for a downturn to buy?
Throughout Maricopa County the inventory shortage is prompting bidding wars and rising housing prices. The value of houses in Arizona has grown by 130% over the last 8 years. These rates continued to increase during the first year of COVID, posting nearly a 16% increase, and are projected to continue growing in double digits.
With the market being so challenging for home buyers and investors, the question we hear repeatedly is, “Should I wait for a downturn to buy?”
The short answer, no. If you can buy right now, you should. Let me explain.
1. Money is cheap.
While prices are high, the silver lining remains that interest rates are at historic lows. This allows investors and first-time home buyers to utilize the full power of leverage as they add to their portfolios.
2. The Inventory Shortage is a Long-term Challenge.
According to the National Association of Realtors, in September of 2020 America hit an all-time low of a shocking 2.7 months’ worth of inventory. The following month we hit an even more concerning low of 2.5 months. To create a well balanced market on a microeconomic level, 6 months of inventory is needed.
Housing cannot be built fast enough to fill the gap we are currently facing. This means that those high prices and low interest rates will likely not be changing anytime soon. The longer you wait, the more you will likely have to pay.
Low inventory also means reduced vacancy rates for investors and that there are more highly qualified renters in the market.
3. Real Estate Remains the Safest and Most Lucrative Investment Strategy
By holding onto cash, you are effectively losing 2% per year to inflation. So, we look to other options, stocks, bonds, crypto currency, precious metals and real estate. Of the available options real estate stands out as one of the safest and most profitable strategies.
The safest investment is said to be a US Treasury. But the yield is so low, that the return on bonds barely keeps up with inflation.
And while stocks are enticing, investors in the long-term expect about 7-8% on average and that is only on the invested capital. For beginning investors there is no ability to use leverage or debt reduction over time.
Real estate in a long-term buy and hold setting provides cash flow, debt reduction and appreciation.
4. Phoenix is a 20-year Market Maricopa County’s population is the fastest growing in the U.S. At one of its peaks, the county added thousands of people daily, culminating in the addition of over 122,000 people between mid-2017 to mid 2018. The population growth, paired with the great economy, landlord friendly incentives, weather and lifestyle continue to provide favorable long-term conditions for investors.
In short, we are not concerned about a looming downturn, particularly when you view real estate through a long-term lens. When it comes to owning property, sooner is always better.
by Michael Bennett, Investment Specialist, Atlas Real Estate