Investors in 2019 have had a love/hate relationship with with the stock market as returns see-sawed, interest rates climbed and whispers of ‘bubbles’, ‘recessions’ and ‘bear markets’ became common.
Read on for our analyst team’s deeper dive into the current market cycle and 5 reasons why we still see opportunity and strength in real estate.
Our Outlook on A Volatile Beginning to 2019
Coupled with the recent stock market volatility has been talk of the next housing market bubble. Property prices, which have reached new all-time highs, have started to dip in primary markets.
While it is reasonable for investors to express concern when the market shows signs of weakness, we believe the downturn in home prices is largely due to the amount of inventory and slack hitting the luxury market. Luxury condos are being built that aren’t needed in cities like Seattle, Denver, Boston and San Francisco. In the affordable housing space, there are fewer homes available and prices have continued to climb. This is especially true in Inland Growth Cities like Spokane.
This graph demonstrates the volatility of the stock market from Q4 ’18 to February ’19
The Stock Market and Real Estate Value Are Not Paired
A benefit to investing in real estate during a “bear market” (when stock values consistently decline) is it can provide a hedge for your investment portfolio. Historically there is “surprisingly little correlation” between home prices and the stock market, asserts Robert Shiller, the co-creator of the Case-Shiller Home Price Index. Not to mention, residential real estate value has risen in all but one of the stock’s bear markets over the past 70 years.
At Akras we say “don’t wait to buy real estate, buy real estate and wait”
It is pure speculation trying to determine when the next downturn will occur, or how severe it will be. The risk investors take sitting on the sidelines waiting for prices to drop is opportunity cost. This time is wasted, since their money is not being invested and could be generating a return. This intermediary period may last another 2 months, or 2 years.
Our 5 Reasons Why We Love Real Estate Investing in 2019
While we can’t attest to loving the stock market right now either, we do (still) love Real Estate Investing in 2019 even in the current market cycle. Below we identify five solid reasons why real estate continues to be a safe haven as well as an attractive asset for building wealth, relative to traditional asset classes and the stock market.
1. Stability. Real estate is not volatile relative to other asset classes and markets
- As volatility in the stock market has significantly increased over the last few months, real estate provides a more stable place to put your money, where you don’t have to worry about huge swings. Rentals can be a great hedge against stock market downturns.
2. Growth. Many lesser-known markets are experiencing growth and opportunity exists to build wealth
- Even as primary markets across the country experience a slow down or reversal in property value appreciation, strong economic and population growth in Inland Growth Cities like Spokane, WA, Chico, CA and Boise, ID have remained unaffected and are still posting double digit growth in property value. (Read the Realtor.com article about the top 10 markets , including Spokane, that have continued to appreciate in early 2019)
3. Predictability. Real estate is a safe, controllable investment if you buy based on cash flow, not speculation
- If you stick to the numbers and only buy properties that make sense based on strong location grades and current cash flow, you make your money when the deal closes, not at some speculative market value in the future.
- With record low apartment vacancies of <2% in Inland Growth Cities like Spokane, finding tenants and commanding market rent is easier than ever.
- So long as you stay rooted in analysis, building in all potential costs and don’t “fall in love” with a property leading to irrational decision making, you’ll succeed.
4. Opportunity. Those that stay active in a correction are rewarded with great deals
- Remember the old adage “buy low, sell high”? While we’re not seeing big swings toward “low” quite yet, if property values do drop, this signals opportunity to gain leverage against sellers and buy at a great value.
5. Competitive Easing. As market conditions become more volatile and costly, fewer people invest
- As the market slows, properties tend to sit unsold for longer and interest rates/costs of capital rise. This creates discomfort that pushes private investors onto the sidelines as they “wait and see”. This means fewer buyers submitting fewer offers, providing active investors with negotiation leverage and a buyer’s edge.
Are you interested in learning more about real estate investing, or want to partner with Akras Capital on a deal? Connect with our team now and we’ll have a conversation to point you in the right direction and learn more about your investment objectives in 2019.