Is There A Right Time to Invest?

Real estate investors need to know what the macro trends in the economy are in order to predict what the market will be demanding and how best to fill those demands.

March 31, 2023

Investing in real estate is not like investing in the stock market. The stock market goes up and down in the short term, but in the long term always sees a slow, steady increase. Even Real Estate Investment Trusts (REITs) which trade on the stock market exchange, tend to be more stable than stocks themselves. There are good times to invest, and at least in the short term, there are also some bad times. Investing in real estate does not quite work the same way. Yes, there are ups and downs, but it is a bit more complex. Investing in real estate is not always done with the intention of buying low and selling high as is often the case with the stock market. Real estate investors gain by providing value or a service to the community. Profit is earned by knowing what the market needs and filling the demand. Real estate investors need to know what the macro trends in the economy are in order to predict what the market will be demanding and how best to fill those demands.


As we head further into the second half of 2022, the macro trends point to a likely recession as the Federal Reserve bank attempts to tamp down an overheated economy and rampant inflation by raising interest rates. Knowing how these forces will affect real estate is crucial to investing in a down economy.


Rising Rates and Real Estate

The Federal Reserve has raised rates several times this year and has indicated they will continue to raise them roughly every six weeks through 2022. As money gets more expensive to borrow, buyers will be able to afford less and less for the same monthly mortgage payment. The result of this will be cheaper real estate prices. In addition to the rising rates, so many people moved during 2020 and 2021 as they fled the crowded cities in search of more space to facilitate work from home and social distancing needs. If people wanted to move, they likely would have done so already. Little demand for homes and high monthly mortgage payments will lead to cheap real estate and little inventory. Cash rich investors who can negotiate good deals will have plenty of opportunities to purchase properties at a steep discount in the coming years.


Inflation and Rent Growth

Another big factor affecting the real estate market is the rising inflation rate. Massive government stimulus throughout the pandemic has left too much money in the system and lockdowns and shutdowns have left too few goods on the store shelves. The cost of consumer goods is rising, and we know from history that residential rents rise with inflation. Those holding rental properties will likely see a surge in the rent they are able to collect, and as many people put off buying a house of their own, finding qualified tenants should become easier as well. Ultimately, to those who can provide value and understand what the housing market will demand, it is always a good time to invest in real estate. Unlike the stock market, investing in real estate involves not just understanding market forces, but problem solving and negotiating skills as well.


For those who still want to participate in real estate investing and reap all the benefits that do not come with the stock market, you may want to check out Cityfunds, a unique alternate class of investment that lets you invest directly in residential real estate in cities around the country.

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