Anyone who’s following the stock market, tariff wars, and overall market uncertainty is probably wondering “what’s going to happen to U.S. real estate?”
Investors should prepare by taking a long-term approach to real estate investing. Despite the noise, U.S. real estate remains a time-tested asset that has consistently built wealth for people around the world, decade after decade. There’s little reason to believe that will change. Here are five reasons why long-term confidence in real estate still holds true.
While there have been drops in U.S. property values during different periods of history (the Great Depression and the 2008 housing bubble), these have been more the exception than the rule.
For the most part, American real estate has climbed steadily over the past several decades, even during other recessions. This consistent growth over extended periods of time has led to significant gains for property owners. When the market goes down the wealthy and wise invest. When the market is up, everyone else does as well.
The U.S. market is the most stable market and the U.S. dollar constantly ranks among the strongest currencies in the world. Compared to places where inflation is high and currency values change rapidly, investors can count on the U.S. dollar holding its value. This, combined with a real asset (real estate) that has historically grown in value, is a strong hedge against inflation. Foreigners see the U.S. as a blue chip market and safe harbor for capital.
Supply is limited. After the 2008 bubble, building essentially came to a halt and hasn’t caught up since. At the same time, there is still strong demand for housing as many millennials continue to buy houses to meet the needs of their growing families. In addition, as new money enters the market, they also seek to invest in real estate to preserve wealth. As such, houses are likely to keep appreciating and rental demand will also exist as a result of this lack of housing.
Piggybacking off of the previous point– supply is limited. When inflation is up and there are high tariffs on construction materials, builders are less inclined to create more housing because the cost to build a house has increased.
Furthermore, higher interest rates impact the cost to borrow capital, making it more expensive. All of this adds up to a continued housing shortage–putting property owners at an advantage in regards to appreciation over the long-term.
During times of economic uncertainty, investors seek hedges against inflation such as commodities, gold, and, of course, real estate. In addition to the previous points, these are some key reasons that real estate hedges against inflation:
Remember the Warren Buffet saying: “be fearful when others are greedy and to be greedy only when others are fearful.” This uncertainty presents an opportunity for those in position to take advantage.
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