The greatest place on earth may be your home.
That goes not only for where you live but also as an investment. The home has been a traditional cornerstone of the American Dream. It is like guaranteed savings.
The Great Recession of 2008, however, caused many people to question the value of owning real estate. A large number of bank-owned homes spooked many potential buyers.
Many people now have doubts about real estate. But despite the increased difficulty in attaining a loan and an unpredictable, rapidly changing global economy, their concerns are not warranted. Real estate remains a sound investment. It tends to increase in value, if not in the short term than over a longer period of time.
Of course, buyers must heed common sense principles have have their financial affairs in order. But if they are careful, they will be able to find good value.
Consider the current nature of the real estate industry below and also why it is likely to thrive in the near future.
Consumers Are Wary
That's partly because people are uncertain about the economy and their jobs. They have become more cautious about making major investments.
But it's also because it's not as easy to buy a home as it was only a decade ago.
Lenders are more stringent than they were. They want firm proof that borrowers can pay back their loans and have raised the standards for evaluating the likelihood that they'll meet their commitments.
That means a nearly pristine credit history along with a 20% to 25% down payment, at least 10 years with a company and 12 months of cash on hand.
In a normal market, 95% of home buyers require a loan, while 5% buy a home with cash. Today, approximately one-third of all homebuyers pay in cash.
Two additional byproducts of the current environment are that more people are renting and that the number of single-family units is increasing. Renting may only increase if interest rates climb as some people say they will. The Federal Reserve raised its short-term target rate last December but has yet held off on an additional increase.
It's clear, however, that people still aspire to home ownership, even younger generations. A recent study by the National Association of Realtors showed that 94% of renters 34 years of age and younger want to own a home in their future.
What's Next?The market will pick up for three reasons:
1. The greatest investment on earth is still property. Real estate continues to prove itself as a hedge against inflation for a few reasons. That's because there is a limited amount of land (scarcity). It's also because increased prices raise replacement costs (value), an increased population creates more demand, and if you get a fixed rate loan -- and 95% of people do -- it hedges against higher rates. This combination generates rising prices, while the monthly principal reduction -- or forced savings -- ensures that owning a home is much better than renting. Additionally, no other form of investment offers anywhere near the tax benefits of owning property.
2. New technology is streamlining the loan process. The tools include intelligent workflow systems, collaborative communication platforms, and data-driven efficiency products for lenders and consumers.
3. The millennial generation wants to own homes. Real Estate Magazine reports that 83% of people under 35 still view owning a home as a fundamental component of the American Dream. Millennials see escaping the rental cycle as a sign of success.