As the U.S. housing market says goodbye to low mortgage rates—and home sales slump as a result— here’s the big question: Is it now time to invest in residential real estate?
“For investors like us (it) is an opportunity, actually, to scoop up some new inventory and master plan communities at, I think, prices that will be well-below what we could have seen last year,” Nuveen Real Estate Global CIO Carly Tripp told Yahoo Finance Live (video above).
There’s no denying that the real estate market has been ugly. U.S. home prices were pushed down in August. A measure of prices in 20 large U.S. cities fell 1.3% on a month-over-month basis, according to the S&P CoreLogic Case-Shiller index. In October, homebuilder confidence slipped for the tenth consecutive month, hitting the lowest level since the onset of the pandemic, according to the National Association of Home Builders/Wells Fargo Housing Market Index.
And, homebuilders and buyers alike are contending with the highest mortgage rates in two decades on top of rampant inflation.
“I do not expect homebuilder confidence to come back any time soon. As you saw, it’s plummeted. And it’s expected to continue to plummet,” Tripp added.
But some savvy investors believe that real estate has been, and will continue to be, a consistent hedge against inflation. In other words: it may be time to buy as others pull back.
According to Tripp, rental properties could be an option for buyers. Rental property owners, for example, can increase rents as demand soars— a result of potential homebuyers feeling to the sidelines.
There’s going to be “continued pressure on the ability to buy and sell a home. And so what that’s gonna do is increase the demand for rental housing,” Tripp said.
Multifamily investment can also serve as a hedge against inflation by offering the opportunity to reset lease rates as frequently as every 12 months, compared to 3 to 10 years for other property types. This provides investors with the flexibility to reset pricing to meet demand or in a way offset rising operational costs.
“But, I would say that if you look across your rental options, single family rental, we’re really seeing a lot of tempering in new starts and under construction versus multifamily, which is continuing to outdo historical numbers,” said Tripp.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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