Demographics and economic fundamentals will make investing in residential real estate a solid proposition for the next 10 years in the United States.
Changes in public policy could make 2019 the ideal year out of those next 10 years for you to make your move.
New Housing Lags
Freddie Mac, the governmental agency responsible for backing many of the mortgages in the U.S., reports the annual construction of new housing is 370,000 units below the level required by long-term demand.
High land, labor and construction costs are frustrating the correction of this supply-demand imbalance, which isn’t expected to improve in the near future.
Federal Mortgage Guarantees Ending?
In addition, a consensus is developing in Washington that Freddie Mac and Fannie Mae should not be guaranteeing residential and commercial mortgages. Many believe these guarantees constitute subsidies that the government can no longer afford.
Residential real estate takes 2 forms:
Most multifamily is commercial property, and not eligible for 30-year fixed-rate financing. Conversely, single-family residences have been eligible for 30-year, fixed financing mortgages—usually at lower rates than commercial rates.
A majority of economists believe that long-term interest rates—given our nation’s debt—are going up. Thus, if you can secure 30-year fixed-rate financing now, you can avoid forecasted uncertainties down the road.
Changes Possible by 2020
With the predicted withdrawal of federal guarantees on conventional residential loans, these 30-year fixed mortgages are likely to go away. Instead, you may find more adjustable-rate mortgages (with rates changing every 5-10 years) or mortgages requiring a full-balance balloon payment.
These changes could occur as early as the beginning of 2020. The fundamentals of investing in real estate will still be solid, but the financing will be less attractive.
So, if you’re inclined to invest, it may be best to act now.
Note: This article is for informational purposes only and does not constitute tax, legal, financial or investment advice. Any information provided in this article is based on sources believed to be reliable, but is not guaranteed by the Rainbow SIG Members of Mensa, Chicago Area Mensa or American Mensa, Ltd, and is not a complete summary or statement of all available data necessary for making tax, legal, financial or investment decisions. No information contained in this article or on this website constitutes tax, legal, financial or investment recommendations or advice.