RealNews RoundUp
Each week I round-up the best real estate articles and break them down for you in an easy to digest format. Here are the articles I’ve found most interesting over the last couple weeks:
The Article: WSJ: Home Prices Posted Largest Annual Drop in More Than 11 Years in April
The Highlights: This article lays out some current housing market stats reported by The National Association of Realtors:
· US existing home sales, which make up most of the action in the housing market, fell 3.4% in April from a month prior and over 23% as compared to April 2022.
· The national median existing home price fell 1.7% in April from a year earlier to $388,000 making this the largest year-over-year decline since January 2012.
· Median prices (which aren’t seasonally adjusted) were down 6% from a record %413,800 in June of last year.
· Existing home sales have declined for 14 of the last 15 months and are down by nearly 33% since the start of 2022.
· A steep rise in mortgage rates has made home purchasing less affordable for most Americans and have discouraged current home owners from selling.
My Take: No matter what you’re reading, I’d caution you to do some digging before you believe the headlines! While it’s true that high mortgage interest rates have created affordability and inventory challenges, this downturn in the housing market isn’t as catastrophic as it seems at first glance.
Some things to note:
· The largest declines in home prices have happened in the western part of the U.S. Home prices fell in 12 of the largest metro areas west of Texas in March of this year (down 10.5% in San Jose,10.3% in San Francisco, 7.5% in Seattle)
· Meanwhile, home prices rose during the same month in the Eastern part of the United States (Up 12% in Miami, 9.3% in Orlando, 8.3% in Buffalo).
· The reason? Home prices were high in the west to start, so when interest rates fell in 2020, it allowed people to bid up home prices even more. Out east, home prices didn't start out so high, so even when prices began to rise, there were still people who could afford to buy homes which kept prices more level.
· Real estate is HYPER LOCAL! The market can vary drastically from one city to another, so always talk to a local expert about what’s happening in YOUR specific location.
· This article fails to mention that this recent decline in prices comes AFTER the largest recent ACCELERATION in recent history. When we compare these numbers to pre-pandemic numbers, things don’t look quite as bad. The national median existing home price in 2019 was $267.000.
All said, there are people in pockets of the country who purchased when home prices were extremely elevated who may have to wait this market out before selling, but I’d argue that’s not the case for most.
Article: Inman: 5 Tips for What Landlords Should Include in a Rental Lease Agreement
The Highlights: If you’ve got rental properties as a part of your portfolio, a lease agreement is essential! What should be laid out? The article gives 5 tips for what landlords should include in a rental lease agreement:
· The Basics: You need a start date, a security deposit outlined, the rent payment, and information about rent increases.
· Outline Future Rent Increases: Always be aware of what state and local laws allow, but being mindful of the current housing market is invaluable. For example, rent was 8.5% higher in March 2023 than in March 2022 in Boston, and a landlord might be leaving money on the table if a tenant already agreed to a 5% increase for a lease that renewed the same month.
· Who Takes Care of What: What maintenance is the responsibility of the tenant vs. landlord? Spelling out the breakdown of responsibilities will help protect your investment.
· Require Renters Insurance: This helps mitigate risk as a landlord and can cover anything from theft to property damage to injury.
· Spell Out Severable Liability: This is a clause that explain how anyone on the lease is 100% liable for the terms and the landlord is legally allowed to purse legal action against the renters named on the lease.
My Take: As a buy-and-hold real estate investor, I have some experience with renters, rental agreements, and the disputes/conflicts that sometimes arise between tenants and landlords. The first piece of advice given in this article is the most critical—get things in writing! This ultimately protects BOTH parties from being taken advantage of.
Working with a good real estate attorney to draw up terms on your rental lease agreement is CRITICAL- it’s not a DIY job. A qualified attorney will know and understand local laws (which can vary drastically from one city/state to another!) and will make sure everything is in order so you can avoid unpleasant and costly conflicts down the road.
If you’re ever considering owning long-term rentals down the road, take note!
The Article: Norada: What Happens to Real Estate During Inflation
The Highlights: Inflation has a direct impact on the real estate market. Real estate is commonly considered a safe and stable investment that can be used to combat the effects of inflation.
Real estate can be a wise choice to invest in (both for personal use AND to generate rental income) in times of high inflation for three reasons:
· The value of real estate is cushioned from economic downturns more than stocks, bonds, and commodities. Real estate's value is less susceptible to market swings because it is a physical asset that satisfies a fundamental human need.
· Rent from real estate can be a reliable stream of income with minimal effort.
· Real estate will increase in value over time. Despite occasional dips, real estate prices generally head upwards in the long run.
My Take: Inflation has ruled the headlines over the last year. The U.S. inflation rate is at currently around 4.93%, compared to 4.98% last month and 8.26% last year. It’s reached historic highs in 2022 and is still higher than the long term average of 3.28%. It’s more important than ever to understand which investments will help you reach your goal.
I agree with the reasons in this article--real estate is one of the best hedges against inflation. When you purchase a home and live in it for several years, improving it over time, you gain equity AND with a fixed rate, you pay less than you would as rents rise. Additionally, if you purchase a rental property, you get tenants who pay down your interest FOR YOU.
As with any investment, there are risks, but rarely will you see your real estate investment lose value over long periods of time.