To say that the current housing market is a tough one would be an understatement. Right now, everyday buyers are grappling with a string of challenging circumstances, including:
- Home prices are still soaring, up 15% from one year ago, per the National Association of Realtors (NAR).
- Housing inventory is limited to a two-month supply, which is well below the threshold needed for a market that puts buyers and sellers on equal footing.
- Mortgage rates have gotten very expensive, adding to buyers’ costs.
Based on all of this, we’ve seen modest dips in mortgage demand in recent weeks. But we’ve yet to see a major buyer pullback, and whether one happens this spring is yet to be determined.
Image source: Getty Images.
If you’re a real estate investor attempting to navigate today’s tricky market, you may have your work cut out for you. Here are a few strategies to look at employing.
1. Consider buying a home in cash
As of this writing, both the average 30- and 20-year mortgage rates are well above 5%. And even 15-year loans have gotten expensive. When you couple that with sky-high home prices, it puts investors looking for income properties in a tough spot.
If you’re hoping to expand your portfolio this spring, you may want to consider making a cash offer on a home. In doing so, you might snag a modest discount or at least avoid having to go well over asking price. But also, you might spare yourself a world of interest, not to mention the expense of closing costs on a mortgage.
But if you’re going to make a cash offer, proceed with caution. Make sure you’re not wiping out your capital and that you have some liquid investments in your portfolio, like REITs, or real estate investment trusts. Tying up piles of cash in a home could mean losing out on other opportunities — not a situation you want to corner yourself into.
2. Capitalize on strong rental demand
Because the housing market is so unapproachable for everyday buyers, many people are continuing to rent homes until property values come down and inventory expands. If you already own income properties, you’re in a prime position to raise rents as leases come up for renewal.
This isn’t to say you should get greedy. But because so many people are struggling to buy right now, you can capitalize on strong rental demand — or perhaps stretch your budget to scoop up a new income property, knowing you’re more likely to command decent rent for it.
When will the housing market cool off?
If borrowing rates keep climbing, buyers may eventually get priced out of the market. But once that happens and demand drops notably, home prices could start to come down.
Will that happen this spring? It could take a while for property values to reach more moderate levels, and housing supply will play a large role in that regard. Buyers and investors alike should continue to track the real estate market — but keep their expectations in check.