Up until Friday, it looked like the real estate market was on a tear. Existing home sales, which comprise about 90% of the residential housing market, and housing starts both surged to eight-year highs in June, and the median sale price for existing homes hit a record $236,400.
In addition, confidence among homebuilders has climbed to its highest level since 2005, before the housing market collapse; inventories are tight; and the commercial real estate market has appreciated so much that the Federal Reserve highlighted its concern with rising “valuation pressures” in a report earlier this month.
On Friday, however, the Commerce Department reported that new home sales fell almost 7% in June, usually one of the busiest months of the year, and lowered sales numbers previously reported for April and May.
Are these signs for investors to buy real estate now, especially before the Fed starts raising interest rates, or signs that they should hold off because the housing market is poised to slow or stall?
“The easy money has been made,” says Greg McBride, chief financial analyst at Bankrate.com. “Now that prices are higher you’re not going to get the appreciation in price that you did when you bought at the bottom.”
McBride also cautions about buying real estate for investing purposes because homeowners “already have a lot more real estate exposure than they think. They need to bulk up their equity allocation before adding a lot more real estate to their portfolio.”
But that’s not what many Americans appear to be doing. A Bankrate poll conducted earlier in July found that real estate was the number one investment choice for Americans with cash to spare. Twenty-seven percent of respondents chose real estate, compared with 17% who opted for stocks and 23% who opted for cash equivalents. Real estate was especially preferred among investors in the West and in urban areas, between 30 and 49 years old and with incomes between $30,000 and $50,000.
For those investors who do want to own real estate — and hopefully have already bulked up their equity holdings — there are some key issues to consider.