Real estate has always been one of the safest ways to invest cash for both short- and long-term growth, yet although housing price growth is declining and wages are slowly increasing, there are still several signs that now isn’t the right time to buy. As noted in the Attom Data Solutions’ Q4 2017 U.S. Homes Sales Report, real estate vendors in Q4 2017 saw an average home price gain since purchase of $54,000, up from $53,732 in Q3 and from $47,000 in Q4 2016 to the highest since Q3 2007. The Q4 average gain represents a 29.7% ROI compared to the original purchase price, making it “the most profitable time to sell a home in more than 10 years.”
Prices Still at a High
Daren Blomquist, senior Vice-President of ATTOM Data Solutions, has noted that the biggest profits are being made on the West Coast. A compilation of 155 metropolitan statistical areas has revealed that the best ROIs are being made in San Jose, CA, San Francisco, California; Merced, California; Seattle, Washington; and Santa Cruz, California.
Los Angeles, meanwhile, ranked fifth nationally in in ROI for long-term homeowners in Q3 2017, with the Los Angeles Times reporting that the typical home seller made $200,000 on the sale of a home in the previous year after owning it for a median period of nine years and eight months. The 53.7% gain was bigger than that made in 28 of 33 metropolitan areas studied by Zillow in this period. Rentals are in greater demand in LA for this reason, despite predictions that trends are set to mirror those of housing prices, predictably jumping by an average of $136 monthly in Downtown LA over the next couple of years.
Wiser to Wait
Although the US is nowhere near a housing bubble, prices will most probably be decreasing, given the current overheating of various housing markets. Currently, the share of cities with overvalued housing markets is half more or less than it was at the peak of the last housing bubble. However, as noted by National Mortgage News, rates for 30-year fixed loans have increased 50 basis points to 4.45% for the week ending on March 22. If mortgage rates were to rise further, affordability would be reduced, thus affecting the flow of price appreciation.
Flipping Returns Retract from 2017 High
The average gross flipping profit of over $68,000 in 2017 represented a 49.8% ROI, considered the second highest average gross flipping ROI since 2000 or earlier. In this same year, however, the home flipping rate decreased in 19 of 52 metro areas analysed in the ATTOM Report, including LA, Miami, Boston, and San Francisco. The downturn in flipping as an investment arises from the competition posed by the large number of home buyers, which is driving prices up and costing flippers to pay more. Supply limitations are likely to see a further reduction in the number of flips in 2018.
Although real estate is traditionally a safe investment, the rise in demand, percentage of overvalued homes and competition posed by home buyers means that it is better to take a cautious approach, especially in large metropolitan areas. As the current market is overheated, it is wise to wait until prices settle down and the percentage of overvalued homes is further reduced.