It seems like every day there is a new story of a home selling well above the asking price. The real estate market is red hot and has been red hot for years now. It just seems like the perfect investment. However, I, Ofir Bar, wouldn’t recommend being very optimistic about this market currently.
There is good reason for concern from the storied investor. The effects of COVID-19 are still more widespread than people believe. The economy is in a point of flux and real estate might be the first domino to fall.
The fall-off in home prices is another big concern. The market has been so red hot for so long that people have gotten used to the fact that they are going to make a whole lot of money just out of the rise in property value, so they don’t even think about putting it on the market.
Here are a few other reasons that might cause some turbulence for the real estate market.
The Effects of COVID-19 Will Still Impact Real Estate
COVID-19 has impacted real estate just like any other industry. Showings have become digital and strict guidance has been followed at all stages of the transaction process. More importantly, though, it has fundamentally changed where people want to live.
People used to want to be in the downtown core, close to the top jobs. But with work from home becoming a mainstay, that is all changing. People want to be in the suburbs. This has led to some small neighborhoods seeing their property value almost double.
COVID-19 has made people look at their home as more than a place to live. It is now their office, their gym, and their daycare. What this means for the real estate market is that buyers are becoming pickier, and sellers are looking not only to rent, but mainly to move since their current location does not fit them. This might lead to a drop in prices.
Rising Interest Rates
Another potential concern for the real estate market is rising interest rates. Securing a mortgage may be more difficult for homeowners if the fed rate goes any higher. There is more risk and there may be less reward.
Even a small increase in the interest rates can have a massive impact on those with a mortgage. Many people are already struggling to meet their mortgage payments, and higher interests could lead to thousands of foreclosures.
Inflation and Loss of Jobs
As if the rising interest rates are not a big enough concern, there is also the rise in inflation to deal with. All across the world, inflation is rising due to the amount of money given out through pandemic relief grants. Inflation is now a serious problem and is still climbing. Some believe, if combined with rising interest rates, it could lead to a depression in the worst-case scenario.
Furthermore, in the last year, the pandemic has completely changed employment. Many long-term employees were laid off and businesses were shut down. While many received grants to prolong their financial flexibility in 2020, 2021 is becoming harder to manage. This may lead to many people being forced to sell their homes.
These are only three of the many ways that the real estate market might be mismanaged for 2021.That is why I, with my two decades of experience in the global real estate market, am warning people not to invest everything they have in one place, as real estate is not a guarantee.
Being caught at the top of the bubble is one of the hardest ways to lose money. Make sure you do your complete due diligence before making any purchase in the current environment.