Whether you're looking for a primary home or an investment property, it's important to study the real estate market before buying instead of focusing only on the house itself, as both pieces can affect the deal. But what factors should you consider about a real estate market? Here are some top things you should know before buying a home as a real estate investor.
1. Location and timing are important
Location is the most important factor in real estate for a reason: You can't change it. Therefore, a home's location impacts value in a big way. Also, keep in mind houses depreciate over time, but land does not. So it's always wise to consider location before buying a home.
If you're looking to get a great value with a good possibility of appreciation, the best time to buy is when the neighborhood is still up-and-coming. It will probably be expensive to get into a neighborhood after it's already established as a desirable place to live. If there's no indication the neighborhood will ever be desirable, it will likely be a cheap buy, but a risky one, as the value could decline. Try to buy when a neighborhood is coming up but not quite there yet.
By studying neighborhood trends, not just a current snapshot, you'll get a good idea of whether the neighborhood is in a good location and on the upswing. Look at amenities, crime statistics, employment figures, population, and school ratings. If everything is improving, the area is worth further research.
2. Price can make or break a deal
Price is always a factor when buying a home. It's always best to buy during a buyer's market, meaning the market favors buyers. For 2020 and 2021, the market is a seller's one, meaning it favors sellers: Demand is up, supply is down, and historically low mortgage interest rates below 3% are making homes more affordable and thus more in demand.
All those factors combined make this not only a seller's market but a strong seller's market, which creates high real estate prices. In fact, the national median home price as of October 2020 was over $320,000 -- a record high. Of course, your mileage may vary, so to speak, for any particular location, but in general, the U.S. market as a whole is currently a seller's market. You might want to wait for signs of prices going down before buying.
3. Housing supply statistics
As noted above, housing supply is currently down. But when home sales are rising because demand outpaces supply, supply tends to increase (unless there are building restrictions). This will likely be the case moving forward, as builder confidence for single-family homes has reached an all-time high, according to the National Association of Home Builders. In a press release, NAHB Chairman Chuck Fowke attributed housing demand to low interest rates and "a focus on the importance of housing."
4. Where to buy in 2021
Investors who buy single-family homes to flip or rent do so in areas with the biggest market for their product. After the coronavirus pandemic, the market has shifted away from city centers and has instead gone to the suburbs, exurbs, and rural areas. As more people realize they can work from home, they're opting for more space, and to afford that, they're moving to where the space is. In a modern-day "Go West, young man" sort of way, Americans are once again looking for new frontiers.
5. How COVID-19 affected employment
As noted, it's wise to look at employment trends in the area you're considering investing in. More jobs coming to the area is a good sign; increasing unemployment numbers is not. But the coronavirus pandemic has skewed the unemployment figures: 15% of adults attribute COVID-19 to the loss of their job. Of those 15%, half were still unemployed as of September 2020, according to Pew Research Center. The uncertainty of the job market is another risk factor to consider before buying a home.
The Millionacres bottom line
You might be ready to jump into the real estate market today, but timing is important. Real estate can be a great way to gain wealth and often seems like a sure thing, but take some time to properly study the market to know what to buy and when to give yourself a better chance for success.