Many people ask if they should be selling or buying investment homes in this market. It is true that we have record high prices, and the value of your current investment home has never been higher. The rule of “buy low and sell high” could easily apply in this situation. The real answer to this question depends on a few key questions:
1) Will real estate prices continue to rise (is this a bubble)?
2) Will rental prices rise or fall?
3) Will we see inflation in the US?
4) Why are large investors still buying single family real estate investments?
1) Will real estate prices continue to rise (is this a bubble)?
Looking at the graph below you can see the supply and demand of homes since 2005. The big difference between now and the bubble is that real estate prices were inflated by loose loan standards driving up demand, but with normal to high inventory. Today we see high demand with little to no supply of inventory. Many experts predict real estate prices will continue to rise.
In St. Louis and St. Charles county we see a similar graph over the last 10 years showing that todays housing prices are a product of heavy demand with record low inventory of homes.
Number of homes for sale vs number of homes sold in St. Charles and St. Louis county.
The bottom line: Housing prices are likely to remain high and rising for a while yet.
2) Will rental prices rise or fall?
We are seeing rental prices rise sharply in the St. Louis market, also due to supply and demand. The graph below shows rentals over $1k per month, in St. Charles and St. Louis County. As you can see, the demand remains high while the inventory is at record lows.
Rental Homes Leased vs Listings (Sale = Leased)
Fox2 News: Report: St. Louis rent prices up 22% from last year
Bottom Line: Rent prices are rising fast and expects to stay high
3) Will we see inflation in the US?
Nobody seems to agree if we will see hyperinflation in the US. Some say it’s coming, some say it will be temporary, and some say its a “mirage”
Inflation Is on the Way for 2021 – Here’s What That Means for You
Get Ready for the Great US Inflation Mirage of 2021 - Bloomberg
Inflation is poised to rear its head in 2021 but may not stick around long
The reason this question is relevant to you selling or buying an investment home is the question of, “what would you do with your equity from a sale”. If you were selling your investment to increase savings or pay down debt, hyperinflation could make that a bad idea. If you are moving from one investment to another, what is the return on the new investment and will it be effected by inflation? Stocks? Bitcoin? Gold?
Bottom Line: Nobody knows, but we will probably see inflation rise.
4) Why are large investors still buying single family real estate investments?
If You Sell a House These Days, the Buyer Might Be a Pension Fund
As a real estate brokerage we see first hand that large institutional buyers are buying up real estate at a record pace. Even at record high prices, large investors are outbidding local investors and hopefully homeowners. “They are simply paying outrageous prices” is what I hear from agents ever day. But why are they buying at high prices? My best guess is that they know that for the long term, there is no better investment than real estate.
Bottom Line: They are buying up houses and so should you.
My Advice To You:
Buy and Hold Real Esate Investments to reap the benefits of:
rising rents,
tax advantages,
rapid appreiciation,
ability to borrow and leverage
shield against inflation
