Created by: Federica Chacón
Nowadays, it seems we all take a collective sigh when looking at the stock market. The situation in Ukraine, recent United States news and developments, and of course, good ol’ Coronavirus are taking the market for a nosedive: Equity markets downturn from December 2021 highs (20% approx), high inflation (8% approx), and slowing economic growth (negative GDP for the last Q1 and Q2 2022). As a result, these indicators have forced the Federal Reserve to take monetary policy actions - increasing interest rates and quantitative tightening - to tame inflation, but which can possibly worsen economic outlook. All of these events raise the possibility of an economic recession and whether we will see a soft or hard landing is an increasingly heated debate.
In times like these, many of us just brace ourselves and wait it out – the market will always get back up, right?. But there are always great opportunities hidden behind all of the commotion, if you’re savvy enough. As Albert Einstein said: “In the midst of every crisis, lies a great opportunity.”
In this article, we’re going to walk you through the top reasons it could be a good time to start looking into building a house, along with a few words of caution to make sure we can see the whole picture by the end.
The Real Estate game is an economic cycle game, where best returns over investments are made when the market is correctly timed. Economy moves in cycles of growth and recession and the most successful investors sure know when to jump in the game and invest. It is why now is a good time to be watchful in the wait of a possible great investment opportunity.
Single Family residential Real estate market still appears to be overheated. However, with increasing mortgage rates and slower economic activity, prices of Real Estate and land are likely to start decreasing, as it is now more expensive to get financing and demand drops. Also if economic recession steepens even more than expected, foreclosures of owners who have to sell to stay afloat may increase which will in turn bring prices even lower.
If land prices fall, then it is a good time to start looking for good investment opportunities. But wait! it may not yet be the best time to start building, as inflation and high interest rates may still be lingering. It is however a great time to start preparing previous steps of the process like purchasing your dream house plan, adjusting the plan for local building codes and lot conditions and so forth.
It would be best to start building once inflation is corrected and brought to normal and the Federal Reserve eases monetary policy lowering interest rates to spur economic growth as they typically do.
As a result, you will undoubtedly pay less for financing and for all services and products needed to build your dream home than you would under today's conditions. Moreover, investing right after market recessions or at the beginning of growth cycles, the mortgage debt on the home will also be much lower than the market home value, as prices will start to increase with the economy getting stronger. Your new home will hence enjoy the benefits of home equity appraisal – meaning the house is worth more in the market than the amount it is owed. So, if you take out a loan to pay for your new home, the investment will not be as risky, as if you would start to build when market conditions are overheated.
All in all, you can be looking at spending way less than you could have on this dream new home, and the best part is that while you enjoy your house for whatever amount of years, when the time comes to sell it, it is almost guaranteed that you will be selling at a higher price than you initially invested. Huge win!
You can see here, in terms of pricing, building at a time like this seems like a good idea all around, but there are a few things you need to keep in mind to make a sound decision for you.
On the flip side
One thing you need to think of right now is job insecurity. As we all transition out jobs because of the pandemic, there is a lot more job insecurity than there was before. If your company or business is on the insecure side due to all this, it’s probably best to sit this one out. Now, if you’ve smoothly transitioned to working from home and are looking forward to having your own home office, this continues to be a great opportunity for you.
Additionally, banks are likely giving away less money for loans and mortgages and are being very strict with credit scores. So if this is something you were counting on, it will be good to research your options and make a decision.
Lastly, the bottom line is that when the market is down, you’ve also got less money invested and probably in your pocket as well. It can be tricky to navigate a situation like this, but under the right circumstances it can all work out well in the end.
We hope this has helped you navigate your decision of building a home right and inspired some moves you can make in order for this to be an incredibly financially savvy decision.