Real estate experts line up on both sides of the are we in a bubble? question, with some saying the market is overheated, while others cite reasons why investment properties will continue to appreciate.
For boomers, however, the question is more than just an airy philosophical argument and takes on real weight given the fact that the number of boomers putting money into real estate is on the rise. Boomers surveyed by AARP in 2003 reported increases both in home ownership and investments in real estate.
In 2003, 78% owned their own home, up from 73% in 1998. Additionally, 37% said they were putting money into real estate, up from 29% in 1998, AARP reports.
Good job growth and more stability on Wall Street will keep the market strong, says Barbara Stone, president of Regency Capital Realty, New York. Purchases of residential units as an investment will continue to appreciate at a 3%-6% rate but not at the 13%-14% rate that occurred in the last year, she adds. “It is still a good solid market.”
As interest rates increase, there may be some leveling of demand and a slight increase in foreclosures but not to any great extent, Stone says. The rise in interest rates will deter the market from becoming investor-driven, thus helping maintain its value, she says.
“There is no bubble. Quite the contrary,” says David Barnes, director of global relocation with Siderow Kennedy Real Estate in Chappaqua, N.Y. In Westchester County, just north of New York City, there is an overwhelming demand and a small supply, he continues. The average house will achieve more than is asked if it is in good condition and well priced, he adds.
Conditions contributing to the strong market include low interest rates and a good job market, he explains. Relocation is also a factor in the markets strength, he says.
If interest rates edge up, the market should remain strong, but if they jump up 2% that could be another matter, Barnes says. Buyers are financing their purchases in a variety of ways ranging from cash to 15- to 30-year fixed mortgages to interest-only mortgages, he finds.
The market has “raced away” in many places creating $1 million towns where until recently a home could be found for $500,000, Barnes says.