Inflation drove up housing prices, 1965 to 2005. We are going to have more inflation.
The real estate bust has made millions of homes available. This has driven down housing prices by 40% in the last five years.
Mortgage rates are low. If you lock in a 30-year mortgage at a fixed rate, you can raise rents during any future price inflation.
Right now, you can borrow for 30 years at around 3.3%. After the mortgage tax deduction, for some people the net effective interest rate is nearer to 2%! That’s going to prove an awesome deal if we see inflation again.
We will see lots of inflation.
Supply is low.
The number of housing starts is currently lower than at any time in at least the past 50 years. Moreover, new construction is only about half the long-term average. Again, good news for investors in housing, since this means that new supply is growing very slowly.
Meanwhile, housing demand — based simply on demographic trends — should rise inexorably for years to come. Take the growth in households — driven by population growth — and apply a home ownership rate. Demographically, the US is still a growing country. By 2030, there will be 370 million Americans. Even using the long-term average home ownership rate means we’ll need 1.1-1.2 million new single-family homes per year.
By 2050, we’ll see 400 million Americans.
The leverage that a mortgage provides is the key to wealth, if you buy from a distressed seller.
Here are the average selling prices for existing homes in the 1970s, as inflation heated up:
1972 — $30,000
1973 — $32,900
1974 — $35,800
1975 — $39,000
1976 — $42,200
1977 — $47,900
1978 — $55,500
1979 — $64,200
Until we get monetary deflation and depression, housing will work as an investment.
For more reasons, click the link.
Most people will not buy investment houses. That leaves the deals to those who will.