These days it seems as though we can never get a definite answer on the state of the real estate market. One day we're hearing great news and the next people make it sound as if the sky is falling. When it comes to real estate, it is important to remember that the market will always be shifting and fluctuating. There are so many complex contributing factors to the health and balance of the real estate market on the whole that predicting these changes is incredibly difficult, if not outright impossible.
Between a volatile geopolitical climate and uncertainties around rising interest rates and other economic conditions, no one is quite sure what to think about the trajectory of the market. However, there is one thing we do know and are seeing: despite naysaying from market experts and economists throughout the year so far, those actually participating in the real estate market—buyers and sellers—feel increasing confidence and positivity about the market.
According to MarketWatch, housing sentiment hit a 5-year high in recent months. That means that people feel better about the market now than they did when markets were booming with demand and exploding with growth. Why is that? And what can real estate investors take away from this information?
What Market Sentiment Really Means
The analytics were presented by the Pulsenomics Housing Confidence Index. What their insights cover are:
- Household attitudes on homeownership and housing market conditions on local, regional, and metropolitan areas
- Homeownership aspirations, affordability, and home value appreciation expectations
This, of course, begs a larger question: why is consumer confidence important? Shouldn't the actual market conditions matter more? Yes and no. The profound psychological effect of mass market confidence (or a lack thereof) can have sweeping economic ramifications for the market as a whole.
How Sentiment Impacts the Real Estate Market
The U.S. real estate market is one of the driving factors in our overall economic health as a nation. While one affects the other so much that is can seem like a "chicken or the egg" situation, we can look back to just a few years ago. Millennial homebuyers felt little confidence in the market overall, and this led to not only a lag in post-recession housing market recovery, but it impacted the economy.
A lack of new home builds and a slowed construction sector has been a problem. When we look at just how integral construction is in our economy (in 2018, pulling in $1.15 trillion and accounting for 6.2 percent of the U.S. GDP), we can begin to understand why a robust housing market matters. The real estate industry as a whole contributes between 15 and 18 percent to the U.S. GDP annually.
Sentiment can often drive this market. Do consumers feel like they can get a deal? Do they feel like they can find a home? That it will be worth it when they do? A lack of confidence means lower demand, stunted buying and construction, and ultimately, a hurting economy.
But with consumer confidence higher than it has been in years, where does that leave real estate investors?
Investing in Real Estate Alongside Confident Homebuyers
There is this misconception that if the housing market is doing well and homebuyers are happy, then investors who earn passive income through rental properties will suffer. After all, aren't we in a competition of sorts? If people are buying, they aren't renting
This isn't so for a few reasons.
Homeowners are not your competition.
As real estate investors, we can sometimes fall into this trap of thinking of homeowners and buyers as our competition. This isn't just because they can cause a bidding war for a property that you may want, but because growing homeownership seems like it would result in shrinking rentership. However, we have seen that renters, despite the shifts in the real estate market over the past several years, only continue to grow.
We shouldn't wish for tough conditions that bar upward mobility for would-be homebuyers. In fact, favorable home-buying conditions benefit us not only as we buy, but as we seek a balanced rental market as well.
A balanced market benefits investors.
We keep talking about balance. But what does that really mean and why does it matter? Before the recent slowdown, many markets were looking at an unbalanced situation. With demand left unchecked, prices were ballooning and fears of a bubble were rampant. With the slowdown towards the beginning of 2019, the balance begins to return. Price gains slowed, inventory in many markets increased, and homebuyers found themselves with more room to breathe.
What we have seen in recent years is that the unbalanced real estate market also created an unbalanced renter market. With rent prices spiking high, rent affordability was reaching crisis levels in some markets. This imbalance is never good for a renter's long-term outlook, nor an investor's. While we want growth, that growth cannot have a chokehold on buyers and renters.
What we see now, instead, is balance and positive sentiments from buyers, owners, and renters alike.
Your Confidence to Invest
While those in the real estate market grow in their positive sentiments—feeling more empowered to buy, more hopeful for their futures in homeownership, and more confident in the trajectory of the market overall—we should feel that same confidence in our own real estate pursuits: specifically, in real estate investment.
While no investment is a sure thing, successful investing can happen in any market conditions. With due diligence and the right turnkey partner to guide you every step of the way, favorable sentiment and market conditions only point to now as your time to invest.
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