TRANSCRIPT:
Is real estate a good investment right now? Hi, I’m Alex Wolfe, Certified Financial Planner and Head of Financial Planning at Base Wealth Management. Today, I’m going to show you why real estate is starting to make sense again as a good investment.
So, what’s the deal? Why is real estate attractive again? Well, good question. It’s becoming more attractive even as prices remain high but have started to soften.
We also must talk about what kind of real estate is attractive and what is not. We are starting to see an increase in mortgage applications even as interest rates have only slightly decreased off their highs. Inventory, or the number of houses and condos on the market, is starting to pick up. This is flipping the housing market to a buyer’s market compared to the seller’s market in much of the United States since COVID began in 2020.
Many workers who moved during COVID because they could work remotely are being called back to the office and are moving closer to where their job is. They are selling the homes they purchased, and some may not be able to wait to sell and are being pressured to lower the price to move it more quickly. There are still areas of the United States where there are inventory shortages and it is still a seller’s market where houses are listed and receive multiple offers within days. However, that is not necessarily the case in most places.
What is going to happen once rates come down? That is an interesting question. Many potential buyers have been on the sidelines renting or living in houses they no longer want to live in. As rates come down, we could see them enter the housing market and increase demand. This could cause housing prices to rise again as the number of buyers and demand increase. They will be able to afford more house as rates fall since they will not be paying as much interest on that home loan compared to buying now with high rates.
Back to the other side of real estate. What’s not attractive? Conventional retail and office space. Retail has long been the lagging side of real estate, such as shopping malls and big box stores. They’ve lost favor with consumers due to the popularity and ease of online shopping. There is some hope, though. Studies have shown that Gen Z likes going out to shop, especially at places that offer more than just shopping, but also experiences.
How about office space? Office space is in limbo. Yes, many employers have brought back their employees and are no longer offering work from home, but the fact is there’s still empty office buildings in major US cities, and that is troubling. Repurposing offices into condos or apartments is very costly and time-consuming. Developers are not very eager to complete this type of work as the potential profit is not as high as one might expect. They have started to get more creative with those office spaces through renovations, open concept working for collaboration, and even shared workspaces like WeWork.
I have not even touched on commercial real estate, but perhaps that is a whole separate video on its own. I’m Alex Wolfe, Certified Financial Planner. If you found this video insightful and want to be notified of future content, please subscribe and hit the notification bell. You can also find additional planning material on our website at BaseWealthManagement.com. We’ll see you on the next one.
