Real estate is not a quick money-making ploy, rather it is an investment that grows in value over time, such as a to collect. But today’s investors act impatiently, making quick decisions without considering all of the factors driving today’s market that will ultimately determine the success of their investments.
Closer to home, national investors flee major California subways to areas with lower and higher house prices return on investment (ROI). Not a single California metropolitan area has been ranked in the top ten for domestic investors in home buying in 2020, according to CoreLogic.
At the start of the middle of the last decade, California was widely known to be an investor haven after the Great Recession when countless foreclosures and foreclosures real estate property (REO) the properties were sold at discount prices. In 2011, the top eight metropolitan areas with the highest investor activity were all in California, including:
- Los Angeles;
- San José;
- San Diego;
- Stockton; and
- Riverside, according to CoreLogic.
In the early 2010s, real estate in California was in free fall. After the Great Recession, investors devoured a lot of real estate in a recovering market with low prices and very low interest rates.
The influx of investors declined rapidly in 2020 as investors shifted their focus from expensive California to the southern and southwestern metropolitan areas, where the cost of housing is relatively low.
Despite general assumptions, the rapid decline in the presence of domestic investors in California was not caused by the 2020 recession, but by the steadily rising home prices in metropolitan areas of California.
Investors today are looking for areas outside of California where home prices are lower, where they can get more for their money. But is it still wise to invest now? For an answer, it depends on the type of investor asking.
Two different types of investors participate in our market – fins and long term rental investors. Pinball machines invest in real estate to make money quickly and for the short term, while long-term rental investors invest in real estate specifically with the aim of owning and renting it over several years.
In 2021, as house prices peak without the support of market fundamentals, pinball machines betting on short-term profit are dancing on the edge of a rapidly collapsing cliff.
Real estate is a collector’s item
Investors who continue to buy property in 2021 are taking a risk because they may only pay attention to house prices, which have skyrocketed over the past year. These fins take advantage of the market momentum and bet on a rapid profit. In California, the average annual increase in lower-end home prices was 21% higher than the previous year, while mid-range housing prices were 22% higher and prices 24% higher.
Instead of just paying attention to these incredibly high annual price increases, investors need to be aware of the various factors that influence our current market and, therefore, their return on investment.
Job growth is the most important stabilizing factor for the housing market. In July 2021, the number of jobs in California was 1.3 million or 7.4% below the pre-recession peak in December 2019. Without stable employment, people cannot qualify to rent an apartment or buy a house. Long-term job losses and high levels of mortgage defaults lasting over 90 days are expected to put downward pressure on high house prices through 2022, making 2023 the best time to buy for first-time homebuyers. and investors.
Infrastructure forms the basis of housing markets, and the Infrastructure collapses. Recovery depends on the success of our infrastructure invoice, which has not yet been adopted by the House. The housing market in 2022-2023 will depend on how quickly jobs are created, and without a boost from government employment programs, the return of these lost jobs will be slower.
Finally, the Fed has announced that it will gradually reduce its purchases of Mortgage Backed Bonds (MBBs) by 2022. When the Fed begins its connecting cone, this will lift the veil on interest rates, allowing them to rise and therefore put downward pressure on the purchasing power of buyers and house prices.
Investors: 2021 remains a maintenance phase for real estate. If you already own a property, you can choose to sell, but it’s definitely not a safe time to buy. Investor purchases are best done at the bottom of a pricing cycle, which is expected to occur around 2024.
For now, don’t try to make quick, short-term money by betting on real estate.