Housing Market Prices Go down yet Rent Prices Go Up!

It is known that the mortgage crisis in the US was the key to the global economic criss that has shaken the world since 2007. After house prices reached their peak in 2006, prices suddenly started declining at the end of that same year. Real Estate is so important that its downfall can cause the entire economy to crash. The economic crash can cause millions to lose their jobs and families to struggle in providing for their children. All of these things caused me to think about the real estate market a bit more, and as a result I am contributing to this section of our blog after a long time.

The other day I spotted a news headline about the rise in rent prices. I realized at that point that this can be incredibly confusing to the common person. We are all aware that home prices have fallen, but yet rent prices are going up. One would think that if there is no money, there should be no demand, which would result in lower prices. This is the exact scenario that recently happened in some developing countries affected with the global economic crisis.

In Australia however, a large group of people that would have purchased a house turned to renting. At the same time, high school and college students who would have moved out on their own and become renters stayed in their parents’ home. In the developing countries instead of renting, this same group of would be buyers would have returned to their parents’ home. Due to these would be buyers turning to renting, the demand for rental properties increased, and therefore rental prices went up as well.

Solution

In theory, it would make sense for home owners to rent out their properties until the prices leveled out and increased. The problem with this is strictly a cash flow issue. Let’s take a look at an example. One family has to relocate to a new city They would like to purchase a home in their new city and therefore, need to sell their old home immediately. Often times people in this situation would buy a second home, and wait for the first to sell. Some families choose to rent a home temporarily until the first home sells and then purchases a new home. This prevents them from having the option to rent their home, because they need the cash flow for their new property.

So this was and still is a perfect time for brave investors, not looking for a fast return on investment. So if you have money just laying on your savings account, and earning little interest, think about investing in real estate. Prices are not going to get as high as they used to be, but will get higher, and meanwhile you will be making money off the rent.

All of these factors make it a perfect time for brave investors willing to wait for a return. Purchasing a home now with extra funds in a savings account earning minimal interest is a great way to invest currently. Renting out the property immediately will ensure some additional income and when the housing market levels out and prices return to normal you can then sell house for a hefty profit.


Leave a Reply