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A Golden Opportunity To Buy Real Estate Is Upon Us

Updated: 01/29/2023 by Financial Samurai 136 Comments

A golden opportunity to buy real estate during the pandemic is upon us. With mortgage rates falling to near all-time lows, the S&P 500 at all-time highs, and a lot of people still fearful, chances are higher you can get a better real estate deal.

Everyone is spending more time at home now. Therefore, the intrinsic value of a home has gone way up. People are looking to buy larger homes with more amenities. Demand for remodeling is through the roof! Yet, given mortgage rates have collapsed, affordability is up.

With the mass media hyping up the demographic shift away from big cities to small cities, it’s time for savvy investor to go the other way and focus on big city real estate again.

That said, secondary cities, also called 18-hour cities are also very attractive given lower valuations, higher net rental yields, and less overall density. Rent prices keep going up in 18-hour cities and rents in 24-hour cities like NYC and SF are rebounding once again.

Let me explain in more detail why I believe now is the time to buy real estate in again for 2021. In 2023, I expect real estate prices to fade given higher mortgage rates. But I think 2023 is another good time to buy real estate.

Why It’s Time To Buy Property Again

1) Prices already softened across the country.

According to the Federal Reserve Economic Data (FRED), the median sales price of houses sold in the United States began softening in 2017. Therefore, we’ve already had some pricing deflation let out of the system.

If we look what happened after the previous peak in late 2006, we saw the median sales price go from $255,000 down to $210,000 (-17%) over the course of 2.5 years. Some time in 2H2009, home prices bottomed.

Home prices gradually ticked higher from late 2009 until 2012, before exploding ~55% higher from $220,000 to $340,000 in 2H2017.

The median sales price had fallen from $340,000 to roughly $310,000 in 4Q2019, a 9% decline. However, median home sale prices are now at $375,000. Despite the big price increases, I’m still bullish on housing. I don’t think there will be a housing market crash for at least three years.

2) Mortgage rates have collapsed.

Mortgage rates have declined by over 1% across various mortgage types since their highs in 2018. The average mortgage rate for a 30-year fixed is now below 3%, which is unheard of.

In 2019, I refinanced to a no-cost, 7/1 ARM at 2.625%, which is going to save me over $1,000 a month in cash flow until 2027. In 2020, I got preapproved for a 7/1 ARM jumbo mortgage for only 2.125% with no fees.

If you’re looking to refinance or get a new mortgage, I recommend checking out Credible. They are a premier lending marketplace that allows you to compare multiple real mortgage quotes from various qualified lenders. It’s free to get a real quote.

Although mortgage rates have ticked back up in 2021, the average 30-year fixed rate is still below 3%. Further, you can get great deals with a 15-year fixed-rate mortgage and 5 or 7/1 ARM.

golden opportunity to buy real estate given mortgage rates are near all-time lows

3) The stock market is at an all-time high.

The S&P 500 closed 2019 up an incredible 31%. In 2020, the S&P 500 and the NASDAQ went up 15% and 43%, respectively. As a result, stocks investors are extremely wealthy, especially tech investors.

So much wealth has been created in the stock market that it is inevitable some of that wealth will move to real estate, which lagged in 2019. The tradition of turning “funny money” into real assets will continue, especially now. We all want to feel a sense of normalcy. And owning a home or a larger and nicer home helps.

At the same time, we’re also looking to invest for a profit. Given real estate prices moves more slowly than stocks, I’m looking to diversify into 18-hour cities across the heartland of America.

The best way that I’ve found to do so is through CrowdStreet, my favorite platform for accredited investors. CrowdStreet focuses on investment opportunities in 18-hour cities. The platform enables you to invest directly with the sponsors as well. If you have a lot of capital to buy real estate, you can build your own select portfolio with CrowdStreet. It’s free to sign up and explore.

Fundrise is my favorite platform for non-accredited investors to buy real estate. Fundrise offers various diversified eFunds/eREITs, which is an easy way to gain real estate exposure across the country. Historical platform returns have been quite steady, in the 9% – 10% range. When stocks do poorly, Fundrise has historically done well. Fundrise is also free to sign up and explore.

4) New President, New Stimulus Money And Goodes

If we know one thing about power-hungry politicians, it’s that in order to stay in power, they will do everything possible to help ensure the economy keeps growing. With President Biden in power, he is promising a never-ending amount of stimulus money to keep the economy going.

The stock market and the real estate market tend to get hyped up over all the promises the presidential candidates promise to get elected. The thing is, regardless of who wins, the stock market and real estate market tend to do well.

Stock market performance under presidential parties

5) The devil you know is better than the devil you don’t.

Once the state income and property tax deduction limit of $10,000 was introduced and the mortgage interest deduction limit was lowered from $1,000,000 to $750,000 for 2018, there was a lot of uncertainty regarding how this would affect a homeowner’s tax bill. Now that homeowners have gotten to see what the exact damage is, homeowners and tax experts can now make more calculated homeownership decisions going forward.

In my opinion, the SALT cap limit hasn’t hurt as badly as some people feared due to the doubling of the standard deduction and the decline in mortgage rates. I personally haven’t noticed any difference and even got a small federal tax refund.

Let’s see if President Biden drops the SALT cap deduction limit. If President Biden does, buy real estate for more tax benefits in expensive locations.

6) Rents continue to tick up.

The value of a property is ultimately based on its rental income. Some coastal cities will have lower cap rates due to faster property price appreciation. While heartland cities will have higher cap rates, which offer tremendous value to income-seeking investors.

National average rent 2009 - 2019

With the coronavirus pandemic, there is shelter-in-place for millions. However, thanks to stimulus checks, generous unemployment benefits by state, and the Paychecks Protection Program, I’m confident that many Americans will survive the lockdowns and keep paying rent. In some states, you can earn $5,000+ a month in unemployment benefits.

So far, all my tenants have paid on time in the pandemic as all still have their jobs and are working from home. The recovery in big city rents is real and picking up steam in 2021+.

Rent prices are rebounding - golden opportunity to buy real estate

7) The Millennial generation is in its prime buying years.

Buy real estate to take advantage of long-term demographic trends. Millennials are now mostly in their 30s, which means they’ve had 10+ years to save for a downpayment. They’re also at a stage where they are settling down and having children.

There’s probably no bigger catalyst to own a property than children. Your nesting instincts go into overdrive as you strive for stability. Further, there is probably no bigger multi-year catalyst to invest in real estate due to demand coming from millennials.

Millennials today account for almost 40% of homebuyers. Supposedly, there are some 88 million millennials now.

Millennials in their prime home buying years means a golden opportunity to buy real estate

Adult Composition of Home Buyer Households

You can see from the chart below by the National Association of Realtors® Home Buyer and Seller Generational Trends study that married couples dominate the home buyer demographic, followed by single females. No surprise, the single male is way behind the single female when it comes to home buying.

I’ve mentioned this before, but there are now eight males over the age of 25 still living at home with their parents within a six-block area around my house. One of my biggest fears as a dad is raising a son who does not grow up to be an independent man by 25. I cannot be too soft.

Adult composition of home buyer households

Where Millennials Are Buying The Most

Below is another interesting graphic I found that shows where millennials are buying the most homes. They certainly aren’t buying as many homes in California or Washington, Hawaii, Florida, New York, New Jersey, Washington D.C. or Boston.

This buying trend gives me confidence that buying property in non-coastal cities is a good long-term trend. I’ve now got Ogden, Grand Rapids, and Des Moines on the top of my radar when I look at deals on CrowdStreet, my favorite real estate crowdfunding platform for accredited investors.

Just like how stock investors shouldn’t fight the Fed, real estate investors shouldn’t fight multi-decade demographic trends.

Where millennials are buying the most and fewest homes - It's time to buy real estate again

Google is spending $13 billion on real estate in Nevada, Ohio, Texas, and Nebraska in 2019 and beyond. Uber signed a 450,000-square-foot lease within The Epic, a mixed-use development in Dallas, Texas. Their office is set to open in 2022. The trend towards the heartland is as clear as day.

8) Wage growth is reaching new highs.

Real median household income finally broke out to new all-time highs in 2017. The latest data is $68,000 at the end of 2020. Higher real household income growth means more buying power.

Real median household income

When you combine wage growth with lower mortgage rates, it’s no wonder why debt as a percentage of household income is close to an all-time low.

Debt as a percentage of disposable income

9) Hot foreign money may be coming back.

Before 2017, a lot of coastal city buyers had to compete with wealthy foreign money, especially from China. Foreign buyers caused bidding wars and a lot of competition for potential local buyers. The Chinese government has since clamped down on hot money outflow to purchase foreign property. As a result, Chinese buyers of U.S. real estate is down over 50% YoY in 2019.

Now with coronavirus fears, you know that the wealthy Chinese are trying to do everything they can to diversify away from the Chinese economy.

From a foreign capital competition perspective, the time to buy is when their spigots have been shut off. Eventually, foreign money will come flooding into America again, especially if there is a resolution with the trade war. There have been over two years of pent up demand for U.S. property. When the demand is finally unleashed, it will probably result in all-cash bidding wars once again.

Currently, we are only battling domestic institutional real estate investors. But foreign institutional real estate investors are coming once global economies open up.

Top foreign buyers into US residential properties from 2016 - 2019 - It's time to buy real estate again before foreigners buy our property

10) V-shaped economic recovery.

During the 2008-2009 financial crisis, the median home price in America declined by ~17% over a 2.5 year period. I do not believe we will go through a downturn of a similar magnitude because lending standards have been so incredibly tight post the 2008-2009 recession. For example, I got rejected for a refinance back in 2014 because my 1099 income was too abysmal. Yet, I had enough in my investment account with the bank who rejected me to pay off my entire mortgage times two!

Since 2009, only people with excellent credit scores have been able to get mortgages. Negative amortizing liar loans have disappeared. It has also become common practice to buy a home with a 20% or greater downpayment again.

With so much home equity that has been accumulated since 2009 by very creditworthy borrowers, most homeowners should be able to weather a financial crisis much easier than in the past. As a result, buy real estate for further upside appreciation.

The self-inflicted recession of 2020 to combat the coronavirus means that the recovery should be much quicker since we have the power to open up the economy. This recession is very different from the last one, which took years to unwind over-leverage in the system.

11) Conforming loan limits are going up.

The Federal Housing Finance Agency (FHFA) announced the maximum conforming loan limits for mortgages to be acquired by Fannie Mae and Freddie Mac in 2020. In most of the U.S., the 2020 maximum conforming loan limit for one-unit properties will be $510,400, an increase from $484,350 in 2019. 

In high-cost areas, the maximum loan limit for mortgages acquired by Fannie Mae and Freddie Mac will be $765,600. Higher conforming loan limits means homebuyers are able to buy more house at the same conforming loan rate.

Further, higher limits signifies the government recognizes real estate prices have room for upside, as their loan limits follow inflation. Therefore, even the government thinks it’s time to buy real estate during the pandemic.

With all these reasons, I seriously don’t think there will be a housing market crash for years to come. There is simply too much momentum with strong fundamentals.

12) The U.S. Housing Market Is One Of The Cheapest In The World

In a global context, the U.S. housing market is the second-cheapest in the world. Below is the latest chart by Numbeo, ranking the cheapest countries in the world by real estate affordability. The United States comes second, partially thanks to high incomes.

United States real estate is cheap on a global context. Rankings of the cheapest countries for real estate in 2021

When the pandemic subsidizes, foreign money will be rushing to buy as much U.S. real estate as possible. If you just look at the Canadian housing market, our closest and most relevant neighbor, you’ll see how cheap the U.S. housing market is.

If the U.S. housing market turns into the Canadian housing market, prices could easily rise by another 30% – 75%!

Buy Real Estate To Build Wealth

I’m thankful to have sold one of my rental property in 2017. Although paying the commission was painful, the peace of mind I received from not having to manage the property as a first-time dad was priceless. Further, the reinvested proceeds have done well so far with no work needed on my part.

With wages up, mortgage rates down, and stocks strong money is flowing into the real estate market. I want to find the real estate seller who was the Dow Jones seller at under 20,000 and the S&P 500 seller at 2,250. It’s time to buy real estate again.

I invest in everything from stocks, bonds, private equity, venture debt, metals & mining, and real estate. I don’t play favorites. I’m mainly interested in maximizing my investments to make the most amount of possible with the least amount of stress as possible.

If you don’t want to take out a loan to buy real estate, that’s understandable. Consider investing in real estate with a real estate crowdfunding platform like Fundrise.

With Fundrise, you can invest in real estate for as little as $500, and you don’t need to leverage up at all. This way, you can easily diversify your real estate exposure and earn income passively. Fundrise is open to all investors. For the average investor, investing in a diversified eREIT from Fundrise is a good way to gain exposure to real estate.

Is now the time to buy physical real estate again?

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If you’re an accredited investor, take a look at CrowdStreet a real estate marketplace that primarily focuses on secondary metro markets that are lower cost with higher cap rates and higher growth than the expensive coastal cities.

These cities include Denver, Austin, Memphis, and Charleston. Due to technology and the rise of the freelance economy, I think investing in lower cost growth cities will be a multi-decade trend. If you have a lot of capital, you can build your own select real estate fund with CrowdStreet. CrowdStreet is also free to sign up and explore.

CrowdStreet funded offerings
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Filed Under: Real Estate

Author Bio: I started Financial Samurai in 2009 to help people achieve financial freedom sooner. Financial Samurai is now one of the largest independently run personal finance sites with about one million visitors a month.

I spent 13 years working at Goldman Sachs and Credit Suisse. In 1999, I earned my BA from William & Mary and in 2006, I received my MBA from UC Berkeley.

In 2012, I left banking after negotiating a severance package worth over five years of living expenses. Today, I enjoy being a stay-at-home dad to two young children, playing tennis, and writing.

Order a hardcopy of my new WSJ bestselling book, Buy This, Not That: How To Spend Your Way To Wealth And Freedom. Not only will you build more wealth by reading my book, you’ll also make better choices when faced with some of life’s biggest decisions.

Current Recommendations:

1) Check out Fundrise, my favorite real estate investing platform. I’ve personally invested $810,000 in private real estate to take advantage of lower valuations and higher cap rates in the Sunbelt. Roughly $160,000 of my annual passive income comes from real estate. And passive income is the key to being free.

2) If you have debt and/or children, life insurance is a must. PolicyGenius is the easiest way to find affordable life insurance in minutes. My wife was able to double her life insurance coverage for less with PolicyGenius. I also just got a new affordable 20-year term policy with them.

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Comments

  1. Jeff says

    February 25, 2020 at 7:50 am

    Great post. This, and some of your other work, has impressed upon me that the best opprtunities for real estate lie outside of the coasts and towards the middle of the country.

    As for the timing, is it too perfect of a time?

    We’ve basically had a 10 year bull market in just about everything so that gives me pause.The Coronavirus has the potential to be a major jolt in terms of economic output. But whether the Coronavirus or some other as-of-yet unforseen catalyst, the odds of a pullback or substantial pullback may be higher or more substantial after such a long-run higher. You mentioned the divergence between the stock market and real estate, but I wonder if real estate is the more telling indicator? Are Tesla and Virgin Galactic signalling that the stock market the one a bit out-of-touch with fundamentals? Thoughts? Always appreciate when others take time to point out flaws in my thinking.

    Reply
  2. Jim says

    February 23, 2020 at 10:40 am

    Sam!
    It’s been almost a decade (2010), since I I bought my first of 3 rental properties and 1/2 ownership of my office building. I am sitting on the beach drinking Dos X in Cancun as I write this, treating my entire family and parent to a much needed vacation. Thanks in part, to my real estate investments. As much as I I love Real estate, and want to agree with you, I feel like it’s not quite time to buy, just yet.
    Yes, rates are unbelievable. There is also some fear in the air of what’s to come (Corona virus, earnings, etc). But prices are still to high. Atleast in my area (Colorado).
    When I began purchasing property, prices were on sale. By on sale, I mean 50% off sale! I understand this may have been a once in a generation deal, but it’s hard for me to pull the trigger on property that is selling for 100%+ more than it did just a few years ago. Something just doesn’t sit well, for me.
    When we look at Replacenment Cost, or the price to build/rebuild/produce the disparity versus sales price seems astonishing and artificial to me.
    I get that everybody is making money right now. I understand it’s been a good ride over the last 10+ years, but prices are inflated and I believe they will come down. The question is when and what will rates look like?
    Im sitting on the sideline, with cash. Maybe because I’m ten years older and now in my mid 40s. Perhaps because I have 3 daughters nearing college. Either way, my guess is, 12-24 months and we’ll see a price correction. Anyways, really enjoy and appreciate your work Sam.

    Jim

    Reply
    • js says

      May 15, 2020 at 10:17 am

      ha ha– this guy was so dead wrong. SF real estate will collapse to nothing –Even more will be defecating on the streets!

      Reply
      • Financial Samurai says

        May 15, 2020 at 4:41 pm

        I’m sorry if you are losing money in the stock market or whatever. It’s a tough time and I know things can be very nerve-racking. Just know that not everybody can afford to live in San Francisco. So don’t feel bad.

        But here are some real time examples of some awesome price performance and sales during the middle of the pandemic.

        https://www.financialsamurai.com/real-estate-outperformance-examples-during-a-coronavirus-pandemic/

        I do feel fortunate to do well in a pandemic and won’t take it for granted.

        GL!

        Reply
  3. MP says

    February 23, 2020 at 9:01 am

    Sam,

    What are your thoughts about being a private lender in this lower interest environment? You state that you want to be “overweight” and “maintain overweight” in real estate, but does that only mean physical assets? What do think about private people who lend to buyers of real estate?

    Thanks,
    MP

    Reply
  4. Colin says

    February 23, 2020 at 8:24 am

    I own an apartment outright in SF and have been struggling with whether to sell since ‘17 (which I regret not doing). Any advise on whether to try to do it before the election? Is it more defensive to be liquid in cash or to keep a property I have no debt on, and I rent out? Is there a sell high, buy low opportunity here?

    Reply
    • Financial Samurai says

      February 23, 2020 at 8:35 am

      Sorry, without knowing when you bought it, the price you paid, the price you could get, etc, I have no way of providing an informed opinion.

      In general, I think the best holding period for real estate is forever. But life happens.

      See: Why I Sold My Rental In 2017, Had To Live For Today

      Reply
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