Is It Time to Invest in Real Estate?

By WEALTH Magazine Staff | Print This Article

You’ve read the headlines. Housing is down and, in many markets, there seems to be no end in sight to falling real estate values. Foreclosures have kicked the bottom out of the housing market, and so many people are upside down in their homes that it seems crazy to even think about diving into housing as an investment.

But remember: What goes down usually does come back up.

True, the sustained drop in real estate values has scared the majority of investors out. But that doesn’t mean you shouldn’t at least consider the possibility that the sickening decline may be nearly over. Fortune magazine certainly thinks it might be. In its current issue, Fortune is declaring that “housing is back.”

According to the article, two factors are laying the foundation for dramatic recovery in residential real estate. The first is the historic drop in new construction. The second is a steep decline in prices: down 30 percent nationwide since 2006, and as much as 55 percent in the hardest-hit markets, according to the magazine.

Such figures, the magazine says, will soon lure buyers back into the market.

Consider the economic recovery. As employment stabilizes and production increases, more money will be available for home-buyers. Credit is still low and becoming more available. And housing is, at the moment, incredibly affordable.

According to Fortune, a study by Deutsche Bank finds that homeowners now pay just 9.8 percent of their income in after-tax mortgage, tax, and insurance payments. That’s down from 17.2 percent at the bubble’s peak in 2007, and by far the lowest number in the Deutsche Bank database, going back to 1999. The second measure, the cost of owning compared with renting, should also inspire potential buyers. In 28 out of 54 major markets, it’s now cheaper to pay a mortgage and other major costs than to rent the same house.

Now, the old standards in real estate purchases still apply. Location is still crucial, and some markets are so bad that it will take years to recover. But a good home in a great neighborhood may soon become a good investment once again.

So if buying a house is in your near- to mid-term plans, you might consider acting soon. And if you are looking for an investment and don’t need immediate profit, you might just think about what was all but unimaginable only a few months ago: residential real estate.

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