According to a recent white paper by the Market Insights program at J.P. Morgan Asset Management, now is the time to invest in real estate.? While the housing market remains depressed, market strategists and analysts at J.P Morgan believe that buying real estate will prove to be a wise investing choice. Low home prices and mortgage rates, along with a reduction in home building, are combining to create not only an ideal buyers? market, but an ideal investors? market as well.
Home Prices
Compare the average household income to home prices.? At the height of the market, the median price of a single-family home was 185% to 230% of household income; now the ratio is 153%.
Mortgage Rates
Mortgage rates are at an all-time low.? The median mortgage payment on a single-family home is currently 6.9% of household income, less than half the 14.4% average since 1966.? This creates the opportunity for long-term financial gain for buyers who lock in long-term financing at the current low rates.
Cost of Alternative Housing Choices
Until about five years ago the average mortgage payment was 150% of the average rental cost. ?Now, the average mortgage payment is 78% of average rent.
Supply of New Housing
Compare home prices to the cost of building new homes.? Since 1975 U.S. residential real estate has been worth about 55% more, on average, than the cost of building it. During the housing boom home prices rose much faster than construction costs, so that by 2005 the value of homes was twice what it cost to build them. ?Home building was profitable, and easy.? Since then construction material costs have risen while home values have plummeted.? Home building has ground to a halt.? Home prices will have to rise significantly before builders will be able to build again and increase the supply of new housing.? This restricted supply will put upward pressure on prices and should comfort current homeowners and buyers.
What about the ?shadow inventory? of homes in or close to foreclosure? It is estimated that about two-thirds of these homes are not yet listed for sale and therefore are not in the inventory of unsold homes.? Some variation on that estimate is true.? We have consistently seen, however, that banks are placing these homes on the market as the market will support them, and are not flooding the market with a supply of distressed properties.
Demand for Housing
Normal demographic trends are building pent-up demand. The recession of 2008-2009 resulted in couples postponing marriage, families postponing children, and immigrants not coming to the U.S. due to the lack of jobs.? Despite the slow economy, however, these trends already support more home building than is occurring, and will only increase as the economy improves.
Summary
Home prices, housing demand, and home building are still low, but they all seem set to increase.? Housing inventories remain high in some areas (when ?shadow inventory? is included), but are on a downward trend. And while the attitudes of both home buyers and lenders remain cautious, they should become less so soon. ? Buyers and home owners should not be discouraged by the current market; it is only creating a pent-up demand for increase.? Although the U.S. housing market remains extremely depressed, current valuations and demographic dynamics make now the time to consider investing in housing.
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Source: http://blog.portlandhometeam.com/2012/02/01/market-insights-time-to-buy-housing/
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