Real Estate Is Still a Popular Investment Pick. What Do You Need to Know About Buying in a Downturn?

The coronavirus pandemic has made us all a lot more familiar with our homes. But it has also thrown up a great number of questions over the future of the property market. 

While global markets were thrown into turmoil in the early days of the outbreak, the property market, broadly speaking, has remained resilient. As of April, the median U.S. house price rose 8% year on year to hit $280,600.

That’s good news for investors. Real estate continues to rank as the top investment pick for the majority of Americans (35%), ahead of stocks and bonds (21%), savings accounts (17%), and gold (16%).

stocks versus real estate

But the coronavirus has shuttered construction sites across the globe, adding to existing supply shortages. And with many industries and individuals now facing uncertain futures, the phrase “safe as houses” has been shaken.  

Buying a home

Buying a home is often seen as one of the most important and prudent financial investments you can make. 

During times of economic distress, that conventional wisdom can be thrown into question. The 2008 global financial crisis, which originated in the property market, was a major knock on confidence. However, financial experts broadly agreed that this downturn will not hurt housing in the same way.

“In most historic recessions, the property market has either remained largely resilient or was only impacted across certain real estate sectors,” noted Dhruv Arora, CEO of digital wealth manager Syfe.

Notwithstanding the short-term difficulties of conducting in-person viewings, that means that now remains a reasonable time to think about buying a home once cities and states reopen.

With interest rates slashed in a bid to stimulate global economies, the cost of borrowing has become cheaper, which could make mortgages more affordable for those with adequate finances. The same goes for refinancing a current home.

Trent Wilshire, economist at Australian property site Domain, said that could encourage more people to get back out into the market. It is already starting to happen in Australia, where lockdown measures are easing, he noted.

“Transactions will start rising again in the coming weeks but are still likely to be sluggish compared to late 2019/early 2020,” he said. “We’re already seeing a pick-up in recent weeks, with new ‘for sale’ listings rising the past few weeks and rising inquiries on Domain from potential buyers.”

That said, the nature of the coronavirus pandemic remains uncertain, and it’s important to look into the specifics of the local and national market of the city in which you’re looking to buy.

Buy-to-let real estate

A buy-to-let property can offer a great source of passive income, via rental payments, and capital growth, through price appreciation. It can also offer an alternative route onto the property ladder for first-time buyers who are unable to buy in their preferred area. 

Those fundamental attributes remain true in the current climate. Indeed, the economic slump has likely exacerbated existing trends, which have priced many young people out of buying and inflated the renters’ market. 

That offers opportunities for those in a position to invest. However, with the global economy on the rocks, so too is the renters’ market. Prospective landlords should be cautious that some tenants may struggle to make their payments

stocks and income

“It’s all going to be about location. The best investment opportunities will be in those places where the labor market is the least damaged,”
said David Lebovitz, global market strategist at JPMorgan Asset Management.

As with residential homes, buy-to-let properties suffer the same logistical hurdles right now in terms of conducting viewings and processing sales.

Sources (click links below for full articles):
CNBC | Karen Gilchrist
GALLUP | Justin Mccarthy

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