It’s no secret that inflation is high nowadays. While the rate of inflation is significantly lower today than it was in 2022, it’s still sitting at about 3%; which is higher than the FED’s stated goal of 2%. Although, FED Chairman Jerome Powell has hinted that he now considers the range of 2% to 3% acceptable… so he might consider lowering interest rates. But currently, interest rates are considerably higher than they have been over the last decade, which causes higher costs for those interested in buying property.
For homebuyers, real estate investors, and brokers inflation is lower than 2022’s record of 9.1% but it is still concerning. Inflation affects various aspects of the real estate industry, from spiking materials costs to a shift toward rentals. A potential oncoming recession also adds to real estate investors’ concerns, as the resultant pricing fluctuations and drops in demand put them in a riskier position than the status quo.
Property is a significant investment, and inflation indirectly makes the return on that investment seem more fluid, leaving people wondering how to best proceed. In this article, we’ll look at possible responses to the current real estate market, walking you through the pros and cons of buying, selling, and holding on to your property.
Buy
Buying in the midst of such uncertain market conditions is a tricky proposition, but some may rightly consider that the possibility of an oncoming recession presents them with a vital opportunity to amass property. Inflation adds another level of complexity to this approach, as housing prices historically rise with inflation – and fall during a recession. Choosing to purchase property, then, is a delicate balancing act, and several factors must be taken into consideration before a single penny is spent on your part.
Guidelines for investing to benefit from inflation include:
- All physical assets tend to appreciate in paper Dollar terms during inflationary periods so investing in real estate can create opportunities for price appreciation.
- Investing in rental properties: Homeownership tends to be less affordable during a recession, so demand for rental properties increases. Tenants help you pay off your mortgage.
- Inflation makes mortgage repayments cheaper- As time goes by your mortgage gets cheaper because it is based in a fixed number of dollars so inflation helps you pay off your mortgage easier with “cheaper dollars”.
Generally, your strategy should walk a fine line between caution and ambition. You want to make the most of lower prices, but you also need to insulate yourself against disaster. Walking that line effectively will be the differentiator when the crisis passes, setting you up for success where others have failed.
Sell
Selling property, at this point is becoming more difficult in many areas of the country as demand wanes due primarily to higher mortgage rates. If mortgage rates come down that could boost the demand for home ownership. If you need to sell your house quickly, here are five strategies that might help:
- Don’t shoot for Top Dollar: Target a competitive price point. The time for top dollar sales in this cycle has passed. Typically, pricing your home a little below your competition’s price gets people through the doors quicker. Pricing that seems like a bargain without skimping too much on value is a recipe for a quick sale.
- Aim for an open presentation: Declutter your home to prepare it for photography and open houses. Renting a storage unit for all nonessentials can be a great way to store your items, while also allowing the space to showcase itself.
- Rearrange and repair: Similarly, you want navigation of your home to be simple for would-be investors. You also want to repair as many of your property’s flaws as possible, setting the stage for a strong first impression and mitigating your would-be investors’ costs.
- Note and emphasize unique features: If your house has anything that gives it character, that should be front-and-center in your listings. Prepare talking points for open houses that accentuate your home’s unique charm, selling it as one-of-a-kind for potential investors.
- Staging: Staging is everything, allowing visitors to picture day-to-day life in your property. Curb appeal is also crucial, as a well-maintained lawn and/or garden helps impart an idyllic aura to your property.
Hold Off
Holding off is the ideal choice if you expect housing prices to come down along with interest rates. Holding off on buying or selling allows you to upgrade and maintain your existing portfolio of property without additional stress. People who opt to hold off might instead focus on renovating their properties, adding value-add features like garages, electric HVAC conversions, and stone veneers. Garages are especially high-value, adding $34,000 on average to a home’s resale value – and something as simple as adding a garage to an existing property allows you to boost property value, without engaging in the risk of buying or selling.
To buy, to sell, or to hold off: that’s the question. Choose the answer that’s right for you, and you’ll weather the economic turmoil with as strong a portfolio as ever.
Image Created by Bing AI.
Note: Opinions expressed by guest authors may not be the same as those of InflationData.
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