Quick returns on housing investments could be over soon

As the prices for bonds fall and those of stock influx, many investors are now trying to find shelter in the housing market which is on a boom. However, according to 2 researchers at Atlanta Fed, this could be a losing intention. The prices for homes plunged by 33% in 2006 and since then, they have not yet returned to the peak achieved that year. The appeal for investing in single-family houses has only been boosted by the deep discounts present.

While talking to CNBC last year, Warren Buffet (an investment sage) said that if it were practical, he would procure a couple of hundred thousand single family homes. With the prices for single family homes increasing by 12% many investors have gone ahead and done as Warren had said. Even though the real estate market looks like a rich ground for investing in the long term, Jessica Dill and Ellyn Terry, the 2 Atlanta Fed researchers,  found out otherwise when they analyzed the numbers in the real estate market back to the year 1926. In their findings, a house hardly ever brings returns that are more than Standard & Poor’s 500 stock index. This is based on a homeownership period of an average of 13 years

The two researchers said that comparison shows that equity investment has more favorable returns than investing in the real estate, especially in the case where the house has been bought as an investment and not a home. Furthermore, the increased demand in the housing sector for single family house has only been heightened by the hedge funds and other investment pooling people have made so that they cash in on the current housing recovery. The smaller investors have also been snapping houses up and then renting them which has led to bidding war in some locations.

With the interest rates starting to go up, some other investors have let go of other types of asset with the treasury bonds which is considered a tradition safe haven among them. The ongoing increase in the interest rates will continue to put off the bond prices especially with the signals from the Federal Reserve of their intention to put to an end the 5-year policy of containing the borrowing costs .According to comparisons, even though the stock returns were more volatile, this was dampened over long periods of holding.

Even though investing in the real estate looks promising, there have been signs showing that the quick money may already have been made. 1st the sharp increase in the prices for homes has started to cool down due to the high mortgage rates. The demand for housing in the future also looks like it will dampen due to the strict lending standards. According to Ed Stansfield, a Capital Economics’ housing economist the increasing interest rates will also affect the market negatively as it will increase the monthly payments for the buyers, a situation which will make it hard for homebuyers to be qualified for loans in the future.

Leave a comment

Your email address will not be published. Required fields are marked *