The Real Estate Corner

Real Estate as an Investment

The promise of a robust 2015 Spring real estate market has become a reality according to all major industry sources. Across the country, sales of existing homes are up in all price ranges as compared to a year ago. The number of New Home sales is up 39% which is in great part a reflection of builder confidence in the housing market as builders commit to new projects.

The Northeast is still trailing the rest of the country with an increase in home prices of less than 1% since last year. But for anyone who has worried, even in the Northeast the pendulum has begun to swing in the direction of growth and appreciation. In New Jersey, Otteau Valuation Group says the number of April home sales is the highest since 2006.

In a recent Gallup poll, the American people expressed their belief that compared to all other types of investments, real estate offers the best value and the highest long-term performance. As fears from the recent downturn dissipate, 94% of homeowners saw real estate as an important part of their financial futures.

For empty-nesters facing retirement, their homes may also be their nest eggs.  Houses are selling quickly. Housing inventory, although growing, is still low. Throughout the country, housing prices have bottomed out. Interest rates, though still near historic lows, have begun to rise.

Many families have determined that this is a good time to invest in their retirement by purchasing a vacation home that they will one day live in year round. Nearly 50% of homeowners nationwide want to retire in a different state. For some, downsizing to a smaller home and using the difference for a vacation home investment is an attractive option. With interest rates at these levels, a mortgage payment for a $200,000 loan can be as little as $939.00 per month. For comparison, the same mortgage in the 1980’s would have cost $2,166.00 per month, based on average rates for that period!

Likewise, investing in a multi-family home for future security is even more advantageous during a period of low interest rates.  A 2-4 family home purchased today with a 15-year mortgage can provide retirement income when the mortgage is paid up, as well as tax benefits throughout the term of the mortgage. Such an investment is a long-term plan. Even without a monthly profit, a 2-family that pays for itself will build equity over the years, and it is this equity that can be drawn on in retirement.

One young family I know has invested in a 2-family home as their child’s college fund. Tenants’ rents will pay for the monthly mortgage and in 15 years, at the end of the mortgage term, monthly income can be used to offset tuition costs. Residential rents have increased dramatically over the past ten years and can be expected to rise in the foreseeable future. In fact, you may not be surprised to learn that New Jersey is among the top five most expensive places to rent in the United States (National Low Income Housing Coalition as reported in New Jersey.com).

Looking close to home, April statistics just released by Otteau Valuation group, Inc. show a strong seller’s market (defined as less than a 6 month supply of housing inventory). Hackensack currently has a 4.2 to month housing supply. Paramus has a 3.6 month supply. Maywood only has a 2.9 month supply, and River Edge has 2.3 months. There are less foreclosures and short sales. Pending sales are on the rise. Now (with the help of a trusted advisor) may be just the right time for you to assess your real-estate portfolio.

The month of June is National Home Ownership Month. We look forward to discussing more of the advantages of home ownership next time, when we meet again.