Why investors may want to steer clear of these markets
You'd think significant home price growth would be a draw for real estate investors. But in much of the country, home prices are up due to one basic formula: low inventory coupled with high demand.
Though mortgage rates have recently begun to rise, during the second half of 2020, they sat at or near historic lows. At the same time, housing inventory was extremely sluggish as homeowners held off on listing their homes due to the pandemic and general economic uncertainty. Buyers, in an effort to capitalize on low rates, crowded the limited market, driving home prices up. As such, the home prices in the above metros may not be reflective of actual value, but rather, the artificial value that tends to ensue in a tight housing market.
In a more normal housing market, home price growth is a good metric for investors to follow. But in today's market, it's downright unreliable. And investors who attempt to buy in the above-listed metros may find home values start to sink rapidly once more inventory hits the market and buyer demand starts to wane. Given the way mortgage rates have trended over the past month, the latter is a distinct possibility.
The Millionacres bottom line
Of course, this begs the question: What is a good market to focus on in the near team? It's hard to say, given that home values are inflated across the board. In fact, inventors looking at income properties or house flips may want to sit tight for another few months and see if an influx of spring listings helps the market cool off. This strategy works well for house flippers especially, those who don't tend to rely on mortgage financing to buy homes and won't be as impacted if interest rates on home loans continue their upward climb.