Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing should you invest in real estate right now in 2021?
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Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing, should you invest in real estate right now in 2021? And if you spoken to anyone that’s interested in investing or buying a house for themselves, and they’ve got a house fever, this can become a very heated debate, but if we’re talking more here about investments, and if you’re buying solely for investment purposes, to question is relatively simple and boils down to valuation. It also boils down to what your strategy is when I’m looking at underwriting from people that reach out to us is I see a lot of aggressive underwriting that’s out there. I see people penciling in that they’re going to have three, 4% rent increases consistently for the next five years. Now, if you’re putting in there a 2% rent increase, I might say fine, you start putting 4% plus, no matter what market you’re in, that is a whole different ball game.
And that’s very aggressive underwriting. And now with the current price right now, the medium listing price of a us single family home nationwide is currently around $375,000. That’s up more than 17 compared to last year, what’s really affecting the price. Well MBS purchases, mortgage backed securities. The federal reserve is currently buying $40 billion worth of agency mortgage backed securities MBS every month in order to support the residential housing market. When they refer to agency MBS they’re specifically mean purchasing those mortgage backed securities, which are made up of mortgages from Fannie Mae, Freddie Mac in Ginnie Mae. It has bought up almost $2 trillion worth of MBS since March of 2020, which is more than its total accurate purchases in any previous period, including 2008. This is a major factor. Why prices are sitting where they are. The other factor with prices sitting where they are is inventory.
Inventory is very, very tight. Usually six months is the inventory. If we start getting over six months of inventory in the market, you can see it kind of starts sliding toward more of a buyers market. When we start getting less than six months of inventory, that’s when it starts sliding to more of a seller’s market. Now mortgage moratorium. It’s another critical factor in this rise as been is the mortgage forbearance and foreclosure moratorium, which has been extended to at least in the summer of 2021, some 2.7 million homeowners are currently enrolled in federally sponsored forbearance plan with even more signed up to private and lender back plans and payment modification schedules. Now this is a fact that we should be taking into consideration. However, what this also means, if prices keep on going up and people are in forbearance for foreclosures and people say, oh, they’re just going to, when it ends, these people are going to go into foreclosure.
Well, exactly. If you’re facing foreclosure in the value of your property is continually rapidly growing. You might be able to sell it and get out without a forklift. Now, if the market slows down a little bit and you’re trying to sell it now with a property that, uh, this is like 2008, 2009, all over again, you’re like short selling your property, where you’re owing more on the property than it’s going to sell for that’s where this could be turning into a problem. Now in, in infect two national inventory of active listings declining by 53% over the last year, creating an artificial shortage of available housing stock. So as I was saying before, about the six month kind of line, when you’re looking at this and you’re going back and forth on different properties, this is very important when you see this, because people aren’t selling.
If people are not selling, then this is going to be a problem. But what happens when people start selling it, get ultimately not, you know, real estate slow, but it’s not that slow. It could ultimately turn into a buyer’s market. If we have an influx at the end of 2021 or 2022 of new listings, when people feel completely confident with COVID being over, you might see a lot more people moving a lot more products, uh, back on the market, lot more homes, investment properties, back on the market. Now, if you’re buying this and it’s for appreciation, this is where the problem happens. If you’ve purchased for cashflow with conservative underwriting, most likely not going to be a problem. Another factor isn’t institutional buyers with PPP money with real us wages decreasing since January due to inflation, more than 10 million jobs wiped out, wiped out since March 20, 20 and weekly new jobless claims still at 385,000 seasonally adjusted.
It’s not surprising that the institutionally owned single family rental housing stock is also at an all-time high of more than 16 million homes as of January with smaller institutional players receiving and buying a properties with federal funds. Now, this is another big thing. You have a lot of people, a lot of investment companies that are buying single family homes as well. So a lot of this inventory might not even be coming on the market per se. It might be just gobbled up right away from institutional investors. Institutional investors invest in all real estate classes, single and multifamily industrial. It doesn’t matter what it is. There is institutional money that is out there looking to be placed in these assets. Now finishing up, I want to talk a little bit about construction. Now, the average cost to build a house is 248,000 replacement costs, or between a hundred to $155 per square foot, depending on your local [inaudible] and the size of your home.
Now, lumber is at an all time high with estimates, from experts saying that that will continually drop through 2021. And that, uh, we’re going to come to a much more stabilized lumber price. By the end of this year, beginning of 2022. Now compare it to the current medium price of $375,000 while rising inflation was one big reasons to invest in real estate and real assets. The average price you’re currently be paying is not really competitive. When you’re looking at the overall landscape, this is something where you have to compare to other historical events. Obviously, if we have a pullback, now it’s going to be a little different than every other pullback, whether it’s early nineties, whether it’s 2008, but a lot of the signs are still the same. Looking to these markets. When people are 40 bids going on a house and houses are selling for five or 10% over listing and all these types of crazy stuff that’s happening right now, you have to look back into other pullbacks and see, because there’s going to be a lot of commonality between them. So I hope this helps you in investing in. Please remember to rate, review, subscribe, submit comments, and potential show topics at global investors, podcast.com. Look forward to two more episodes next week. [inaudible]
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar LLC exclusively.
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