Real estate investment, buying a home in a downturn

The coronavirus pandemic has made us all more familiar with our homes. But it also raises some big questions about the future of the real estate market.

While the global market was in turmoil in the early days of the outbreak, the property market, broadly speaking, remains resilient. As of April, the median U.S. home price rose 8% year-over-year to $280,600.

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

But the coronavirus has closed construction sites globally, adding to the current supply shortage. And with many industries and individuals now facing uncertain futures, the phrase “as safe as home” has been shaken.

CNBC Make It spoke with experts to find out what could happen in the immediate future for the future of real estate.

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

In tough economic times, that common sense can be called into question. The 2008 global financial crisis, rooted in the real estate market, was a major boost to confidence. However, financial experts agree that this downturn will not affect housing in the same way.

Dhruv Arora, CEO of Syfe, CEO of the digital asset management firm said: “During most of the historical recessions, the real estate market has largely recovered or been just impacted. in certain real estate sectors.

Despite the short-term difficulties of doing live viewings, that means now is still a good time to think about buying a home once cities and states reopen.

With interest rates slashing in an attempt to stimulate the global economy, borrowing costs have become cheaper, which could make mortgages more affordable for those with the funds. The same goes for refinancing an existing home.

Trent Wilshire, economist at Australian property website Domain, says that could encourage more people to return to the market. It has already started happening in Australia, where lockdown measures are being eased, he noted.

“Transactions should start to pick up again in the coming weeks but still potentially sluggish compared to late 2019/early 2020,” he said. “We’ve seen an uptick in recent weeks, with new ‘for sale’ listings increasing over the past few weeks and growing queries about Domains from potential buyers.”

That said, the nature of the coronavirus pandemic remains uncertain, and it’s important to consider the specifics of the local and national markets of the city you’re looking to buy from.

Buy-to-let properties can provide a great source of passive income through rent payments and capital growth through price appreciation. It could also provide an alternative route up the property ladder for first-time buyers who are unable to purchase in their preferred area.

Those basic attributes still hold true in the current climate. Indeed, the recession has the potential to exacerbate existing trends, dissuade many young people from buying homes and inflate the rental market.

That presents an opportunity for those in an investment position. However, with the global economy on the rise, so does the rental market. Prospective landlords should beware that some tenants may have difficulty making payments.

“It will all be about position,” said David Lebovitz, global market strategist at JPMorgan Asset Management. The best investment opportunities will be in places where the labor market is least vulnerable.”

As with residential homes, buy-to-let properties are subject to the same logistical hurdles right now in terms of performing views and processing purchases.

Commercial real estate, including the hospitality and retail sectors, has been hit hard, posing the biggest risk to investors.

So far, the commercial real estate market has dropped by nearly 28%, with hotels & resorts and retail space down 48% and 40% respectively.

Syfe’s Arora says the outage will take some time to fix. That recovery will likely happen “gradually” – or U-shaped, not V-shaped – as economies begin to reopen in phases, he said.

However, everywhere there are downsides, there are also opportunities, Arora noted.

“As always, there will be investors who see the long-term potential of these real estate sectors,” he said.

Arora said sectors with “solid fundamentals”, such as industrial, residential and specialized real estate, show exceptional signs of recovery. Meanwhile, China – which was initially at the forefront of the outbreak and is now leading the way in economic reopening – gives indications of which sectors have thrived under the pandemic, mainly is healthcare and logistics.

“We still view property value directly as a source of income and more broadly as a portfolio diversifier,” adds Lebovitz, emphasizing direct purchases and real estate investment trusts. Real Estate (REITs) is one of the best options.

“We believe it is the combination of REITs and direct real estate, particularly REITs, that provides more exposure to forward-looking sectors,” he said.

Before embarking on any financial, real estate or other investment, it is important that you have the right foundation.

Typically, financial advisors recommend setting aside about three months’ salary in cash to help get you through an emergency. However, in the current economic climate, six months may be a safer bet, according to personal finance expert Ramit Sethi.

“Emergency fund is money saved for any unexpected expenses. It helps keep you in mind knowing you have a hedge against the worst of financial disasters,” he wrote on the blog “I Will teach you to be rich”.

In addition, it is important to set aside extra money to cover the legal and transactional costs associated with purchasing a property.