Whether you are an investor or a realtor working with investor clients, there are certain economic factors you should be aware of when researching new investment properties. Clients look to us for guidance on when and what markets are prime for investing. Every client has different risk tolerance, but being aware of what the economy is doing and where it is going is important in helping make them sound investment decisions.
1. Inventory Levels: Low levels of inventory and higher demand will support home prices. Locally in Orange County, the inventory levels have been kept low by several factors including sellers that still have negative equity, new construction is not meeting demand, and low mortgage rates may be keeping homeowners from selling and giving that up.
2. Economic Factors Other than Home Values: Looking at other factors in the economy other than the current trend of home values is important. Rate factors such as wages, housing affordability, homeownership rate, mortgage interest rates, unemployment rates, Dow Jones, and mortgage interest rates all must be scrutinized.
3. Homeownership Rate: Many see the decline in homeownership since the 2007 crisis as negative. However, many of these homeowners who became renters during the housing bubble burst may look into becoming homeowners again.
4. Housing Affordability: Housing prices are recovering from the steep drop they took in 2007. As home prices steadily rise, the percentage of buyers that can afford to buy a home decreases. This is especially true in areas where home values are much higher than the rest of the country such as Southern California. Wages are flat compared to the home value increases. When investing, you want to look at how many people can actually afford to live there.
5. Housing Prices and Interest Rates: With home prices on the rise and interest rates that remain low, it is important to really understand the area you are investing in and doing your due diligence. That means looking at how housing prices are being affected by the economic condition in that area and where are interest rates going. Understanding both of these are important for a sound investment.