When Is a Good Time to Buy Into Residential Real Estate?
What constitutes a good time to buy into residential real estate is highly dependent on multiple factors, ranging from personal situations and motivations to broad, macroeconomic conditions.
Why are you interested in buying residential real estate? This is the first question that must be answered before taking steps in that direction. Are you planning to develop it? Perhaps you intend to design and build your own dream home. Making an investment for one’s portfolio is another reason.
For those seeking a place to live on a long-term or permanent basis, almost anytime can be a good time to buy. Currently, the Phoenix home market is in the midst of a “correction,” in which supply is starting to adjust to demand. Right now, the supply of homes is somewhat greater than the demand, although this depends on which part of the Phoenix metro area in which one plans to purchase a home. In general however, the market is operating the way markets are supposed to – when supply outstrips demand, prices fall. This puts potential homebuyers in a strong negotiating position, making it easier to get a good deal.
Investors typically buy residential real estate for one of three reasons: (A) they are seeking property for development, intending to build a number of homes and resell these to the public; (B) they are thinking of “flipping” the property for a quick profit; or (C) they wish to acquire rental property in order to create a stream of income. Let us examine these one by one.
It is true that applications for building permits actually increased in 2007. It is also true that job growth and population are both expected to increase over the next two to three decades. However, the “correction” referred to above is still in progress; currently, there are more houses than there are buyers. Should current trends continue, this situation is likely to change, however nobody can really predict the future with 100% accuracy. A housing development may indeed turn out to be an excellent investment, but it should be expected that any returns on that investment will take time.
The days of real estate “flipping” are seemingly over. This type of rampant speculation was part of what fuelled the dramatic, but largely artificial run-up in home prices during the 2005 “boom.” It is unlikely that such market conditions will exist in the foreseeable future.
Because population and the economy are on the rise in the Phoenix area, rental property can be a very sensible investment. Some individuals will be unable to qualify for a mortgage; others may not wish the responsibility of home ownership, or are planning on living and working in Phoenix on a temporary basis. A landlord may, in this respect provide a valuable service. Keep in mind however that this again is a long-term investment – and with mortgage, taxes, upkeep and market rent levels, a single residential property is unlikely to provide a sizable revenue stream; generally, several rental properties are necessary in order to provide a reasonable income, and the responsibilities of upkeep and maintenance (your responsibility as a landlord) can easily constitute a full-time job (being handy at construction and repair jobs is no bad thing, either).