By Kalista Mefford – Keller Williams Realty
Real estate investment can be challenging, especially during these times where we keep experiencing unprecedented events such as a world-wide pandemic, oil prices turning negative and stock markets collapsing. Despite these recent events, investing in real estate in the United States (US) remains a viable option for foreign investors.
When considering if now is the right time for you to invest in real estate in the US, smart analysis of key market indicators can provide you with important data needed to determine your risk as well as potential reward.
There are a number of factors to consider prior to making an investment into the real estate market: They include home sales, inventory, home prices, and appreciation. Let’s take a look.
Home sales have continued to rise despite the pandemic and extremely low inventory in most markets. Pandemic-driven demand sent total 2020 home sales to the highest level since 2006. For all of 2020, sales rose to 5.6 million, the highest total since 2006 at the height of the housing boom. That represented a 5.6 percent gain from the 5.34 million previously owned homes sold in 2019.
EVEN the most avid buyers are coming up against barriers in today’s housing market. Record low supply and record high prices are limiting the exceptionally high demand. At the end of December, inventory stood at just 1.07 million homes for sale, down 23 percent year over year. At the current sales place, that represents a 3.1-month supply.
Due to the strong demand for homes, buyers are often faced with multiple offer situations. What does this mean for investors wanting to come into the US market? It’s best to be prepared to put forward your strongest offer. Being able to anticipate what the seller’s goals are and creating an offer that will aide the seller in achieving these goals is highly encouraged. While your agent will help you with a strategy based on the market, to improve your odds of wining a bidding war you will need to make your best impression as a potential buyer.
Low supply and strong demand continued to fuel the surge in higher home prices. Traditionally, home prices are expected to increase at 4%. Before the great recession housing prices soared above this trend, and since then the market has been correcting for this inflation.
Part of the sharp increase in the median price is that home sales are stronger on the higher end of the market, where there is more supply. Sales of homes priced below $100,000 were down 15% annually, while sales of homes priced between $500,000 and $750,000 were up 65% annually. Sales of million-dollar-plus homes were up 94% from one year ago.
HOME PRICE APPRECIATION
While home prices are still below where they should have been since the recession in 2007, they are now almost fully recovered. What this means for you as an investor is that the recovery period could be coming to an end, and appreciation could begin to return to a steady return of 4% per year.
Home prices had an annual appreciation of 9.0% in 2020 with May and June of 2020 having the highest appreciation in pricing in the 30 years of record keeping. There are several reasons that this appreciation has occurred, from the post-pandemic real estate rush, to the rise in lumber cost. What it means for buyers is that if allowed to continue, we could potentially see another real estate bubble.
Looking ahead at the 2021 Forecast that was released by Keller Williams, home prices are predicted to continue to rise, reaching $317,000 and returning the US housing market to pre-recession levels. The market will continue to be strong and demand high, but inventory should increase slightly along with home prices.
As an investor coming into this competitive housing market you will need to be prepared to make quick decisions when you’ve identified a home to purchase. As we continue into 2021, all signs point to a more traditional 4% annual growth rate.