History Suggests Strong Returns For Real Estate Investment
There is a significant cycle change in home ownership that is occurring, and I believe it supports stronger returns in real estate investment.
There is plenty of evidence to support a decline in home ownership rates, but there has not been much noise in the blogosphere or mainstream media on the consequent implication for real estate investment.
A quick review of historical home ownership rates makes for some logical conclusions about the future values and future cash flows that should be expected from a smart real estate investment.
Real Estate Investment And Home Ownership
When we look at the historic rates of home ownership in the US and in Florida, a surge occurred in the early 1940s and continued until the end of the housing bubble in 2007.
Currently, home ownership rates are on the decline, and I suspect that we are entering a long-time cycle where the government will not push so hard to force-feed the American dream. While we may not return to levels below 50% in home ownership rates, a decline is inevitable nevertheless.
And what would a continual decline in this mean for somebody considering a residential real estate investment?
Residential Real Estate Investment
Home values will continue to rise over the long-term providing inflation continues and the population expands. The need for housing will grow for the foreseeable future, and the cost to fill this need will rise with wages and the cost of materials.
Along with the rise in prices, rental rates will rise. But here's the exciting part for investors ...
As home ownership decentralizes, more properties will be held by fewer people. This means less competition when setting rental rates, and thus a marginally higher rate in the rise of rental rates.
This level of centralized control was lost in the market when ownership levels rose well above 60%, but we can expect a certain degree of "price control" to return as only the wealthier are able to own homes.
Thus, residential real estate investment is poised for a rise in rental rates over the next several decades. This is not merely a short-term, knee-jerk response to the current real estate market, rather it is a logical conclusion to the long term trends that have occurred in both real estate appreciation and historical home ownership rates.
Anybody with significant investment capital should be at least considering a long-term move to the housing market.
If you are considering moving some of your capital to a real estate investment, I recommend you start by preparing a detailed plan.
If you'd like more information, simply drop me a note to schedule a time to review your specific goals and situation.
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