Given the ramifications of the 2008 Global Financial Crisis, it’s somewhat understandable if people have taken a different approach to investing in real-estate. However, while that crisis was indeed detrimental to the housing markets worldwide, those same markets have started to recover. That recovery has once again demonstrated that buying appreciating assets and leasing depreciating assets is still as a basic principle of solid money management.
Not all debt is bad debt. Real-estate is considered a good debt because you are essentially purchasing an asset that has a proven history of growth over the long-term. In fact, history has shown that every downturn in the housing and real-estate markets has been followed by an upturn in home and real-estate values. Ultimately, while the real-estate markets tend to go up and down over the short-term, investors must take a more long-term view, one where they ignore any short-term dip in market pricing.
Given the reality of the market’s long-term performance, does this mean that any real-estate investment is a sound investment? Unfortunately, it doesn’t. The crisis of 2008 was largely due to overvaluation on home prices and an excess inventory of housing and rental properties. It took time before the market adjusted and house values inched up. Like any investment, individuals must have a solid plan when looking to invest in real-estate. However, if that plan is solid, then gains can be made. This is mainly due to today’s historically low interest rates. What made these rates so low?
The Federal Government’s “Quantitative Easing” strategies over the last couple of years focused on purchasing mortgage-backed securities from banks in order to loosen credit restrictions and lower interest rates in capital markets. By paying the banks an extremely low interest rate, those same banks had no choice but to lend that money to credit-hungry investors. Increased competition forced interest rates down. As a result, individuals are now more enticed to purchase a house, or put their money in other real-estate investments.
Recently, Lawrence Yun, the chief economist for the National Association of Realtors (NAR), stated: “With rents now rising at a seven-year high, historically low rates and moderating price growth are likely to entice more buyers to enter the market in upcoming months.”
Given this potential influx of new buyers, there are several market-savvy investors who believe that the worst is behind us. Regardless of this, it is still important that any investor take the time to perform a thorough and proper analysis, one that takes into consideration their financial standing and risk tolerance.
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