[quote=livinincali][quote=flu]I think people (with funds to invest) are looking for better returns, and with your traditonal “safe” investment being pidly 1,2,3%…People are just itching to take on slightly more risk for slightly more return.
And for that, some people think it’s RE..
For most people, putting money into the stock market is still to risky and volatile and while we were seeing decent returns this year on boring indexes (11-13% ), it’s not something that necessarily is sustainable each year…
So I don’t see this changing…People are saying once rates go up on mortgages, home prices will crater. I’m not so sure…So many factors….My gut tells me it depends on how RE performs relative to other things… For instance, if the equity markets tank, people will probably still be looking at RE as good bet. Risk/return for most people on stock market is still too high I think…[/quote]
It’s pretty obvious that single family housing is becoming a target for investment by non-traditional sources. The two biggest issues I see with that is #1 they don’t really want to be there. They’d much rather have a nice safe CD or Bonds that yields 5% but since they can’t find that return they are being forced into what is perceived to be a safe yield investment in RE. Is is safe to assume vacancy will remain low and rents will remain sticky? Probably but who knows.
The second is they lack experience being landlords. They think I’ll get a management company and collect checks in the mail every month. The problem is that landlording tends to be more complicated than that and involves actual work. Getting a 8-9% cap rate requires you to do some work to earn it.
I think the biggest key for the long term appreciation in housing is the wherewithal of all these freshly minted real estate investors. Will they stick it out until their tenants can afford to buy them out at a profit, or will they grow frustrated and liquidate.[/quote]
Ding, ding, ding!!!
And this is why higher interest rates will decimate the housing market, IMHO. Not only will it increase carrying costs for the buyers, but all of the “all cash” investors of the past ~4-5 years will vanish from the market if they can get better yields on bonds.
The low rates are also pulling some owner-occupied buyers into the housing market who might not otherwise be buying right now. For ourselves, we had to weigh what we were making on bonds vs. the “savings” we’d get by buying instead of renting. For a few years, our passive income was more than covering our rent, but when all of our bonds were called or matured, we were left with <1% returns on shorter-term options (always laddered and kept things in shorter-term options because we knew we wanted to buy a house at some point and wanted to be able to act when the opportunity arose). The pros and cons of renting vs buying kept us pretty firmly planted on the fence, but the low interest rates pushed us off entirely. We know a number of other families who are/were in the same boat.
