With rates at all-time lows and poised to rise, this is an ideal time to consider buying palos verdes real estate. In recent years, buyers have continued to stay on the sidelines opting to attempt to catch the bottom of the real estate market. This is a great strategy if these people can reach into their closet for a crystal ball or obtain Biff’s almanac from the Back to the Future movie. We continue to believe, as optimistic as we are about real estate as a long-term investment, there is no way to be able to find the bottom of any market. The fact remains that timing any market is a fools game.
The reasons for this are two-fold. Firstly, catching the bottom of any market, whether it is stocks, bonds, real estate, etc., has been attempted and failed by many of the World’s greatest financial minds. Timing the bottom is part luck, part skill, and part divine intervention. Market valuations tend to overshoot wildly on both the upside and downside as primal instincts of fear and greed take over the process. The fear instinct is actually far more powerful, thusly, thrusting markets downward at a faster rate than they rise. This dynamic has certainly been demonstrated in the real estate markets of the past few years.
The second element making it difficult to time the bottom, is the fact that there are many different factors at work that may be correlated or inversely correlated. For example,usually, when interest rates rise, property values tend to fall. As money becomes more expensive to borrow, property values come down to meet the decreased demand for housing. People can no longer afford to finance at higher levels, therefore, forcing prices down. However, in recent times, we have seen rates fall precipitously as home prices also fell dramatically forcing real estate foreclosures. This, historically, doesn’t make much sense and violates some of the simple supply and demand theories. The reason for this disconnect was that we entered into a period of disinflation which drove all prices and demand downward. The experts were mixed on where the economy was headed and many were confused about how the markets were behaving. This caused a flight to non-risky assets like bonds and precious metals. In short, noone, including the experts, had a clue where we were headed next. Now, one thing is certain, we will either have inflation, deflation, or little or no growth. How’s that for a prediction !!
The Bottom Line
With today’s historically low rates and home prices in a 30-40 percent correction, it would be prudent to look to real estate as an attractive investment vehicle. If you purchase now and interest rates rise due to inflation, your property value should increase and you will have a locked in rate lower than the market going forward. If we get deflation, your property value may decrease but you will be able to refinance at lower rates in the future All the while, you are receiving tax benefits from writing off your mortgage interest. In a low or no growth environment, you are being paid to wait. In this case, interest rates and property values would remain flat and you will still be receiving mortgage interest tax benefits. Sounds like a pretty good risk-reward scenario to us.
Registered Investment Advisor
Where Integrity Meets Experience