There’s no telling how long the market upheaval will last. It’s only natural to feel a bit lost in all of the noise and anxiety.
It seems there are few, if any, places that the Fed’s interest rate hikes haven’t affected.
And, naturally, as the cost of borrowing increases, it marks a cooldown of the red-hot real estate market that had thrived during the pandemic. Well, “thrived” is relative. If you’ve been a home buyer these last few years, I doubt that’s the verb you’d use.
Yet, despite the exponential increase of home prices, the cost of borrowing made that hike a bit more palatable.
At the beginning of January, the interest rate for mortgages was 3.25%.
This week, that rate reached 6.28%, up from 5.55% the week before. This represents the highest mortgage rate since the 2008 housing crisis and the biggest one-year swing since 1981.
If you’re wondering about the tangible impact this has on prospective home buyers, it’s a difference of nearly $600 per month on a mortgage for a $400,000 home with a 20% down payment.
However, the reality remains that real estate is one of the safest investments in the financial world.
There are only two instances – the Great Depression and following the 2008 recession – in the past 100 years where the year-over-year price of homes declined.
While this could be coming given the current state of the economy and the fervent demand for homes during the pandemic, any decrease in home value would likely be negligible in the grand scheme of things.
Sure, it’s no fun to buy a home at its highest value and watch that value decrease in the year that follows. However, the reality is that real estate is one of the most stable investments you can make, as these assets continually appreciate in value over the long term.
Real estate is not subject to the same fluctuations of the public markets, and despite increased interest rates, it is still a useful hedge against rampant inflation.
Yet, with real estate prices as high as ever, it’s an understandably difficult proposition to say, “Go buy some property.”
Thankfully, there are other ways to benefit from the stability of real estate investments without having to grapple with the reality of the costs of homes and borrowing.
That’s because there are a lot of startups and crowdfunding investment opportunities in the real estate industry – whether PropTech (Property Technology) or some other variation – where investors can buy a small stake of a relatively safer sector.
The crowdfunding angle is particularly appealing, because, as Wavemaker Labs CEO and founder (and chairman of the Angels & Entrepreneurs Network advisory board) Buck Jordan put it in a blog post in early March, “you can invest with much smaller ticket sizes (instead of buying a whole apartment) and still participate in the upside.”
We all know that angel investing comes with risk, and startups with impressive teams and visions can falter. That’s a big reason we preach diversifying your investments.
And in the same way that people will invest in high-risk, high-reward opportunities and hedge them with safer investments, you can do the same with real estate.
It’s all about doing your due diligence and investing in the right opportunities.
You don’t have to go radio silent in this current economy. You just have to know where to do the talking.
The Research Team