What’s the best way to invest your money while inflation drives up prices across the board? Gallup has asked that question for decades, and the answer has been the same for the past eight years.
Yet many Americans are still on the fence about buying property in 2022.
Two Gallup Polls
According to one annual Gallup poll, 30% of U.S. adults say it’s a good time to buy a home – 23 percentage points lower than last year. This is the first time that figure has been lower than 50% (Gallup has asked the question every year since 1978).
Seems more Americans are looking at the rising mortgage rates and higher cost of housing and deciding it’s best to hold off for now.
Yet, in another Gallup poll, Americans voted real estate as the best long-term investment – beating stocks and bonds, crypto, cash savings, and gold.
Not only that. This is the eighth time in a row real estate has made it to first place.
So, why do we keep voting for real estate as the #1 long-term investment, even when Americans are hesitant to invest in it right now?
And how can you use this information as a real estate agent to better serve your clients and prospects?
Why are Americans holding back?
Many buyers in the U.S. are putting their property buying aspirations on the back burner for two reasons:
- Rising mortgage rates
- Higher cost of buying a home and (thanks to those higher rates) monthly payments
The higher mortgage payment, in turn, affects the price point a buyer can afford, limiting their options when buying a home.
Many buyers are thinking, “Just wait until demand goes down enough that housing prices go down with it,” but that expectation has no solid data to back it up.
Sure, demand is down, but so is inventory. And buyers are still offering more than the asking price to beat other offers.
Renters are now doing the same thing – offering more than the asking rent to get their foot in the door. But homeowners can at least count on each mortgage payment adding to their equity and building their wealth. Renters, not so much.
What makes real estate the best investment?
With real estate stock value plummeting, it’s clear to many investors that real estate is a better bet than real estate stocks – or any stocks, for that matter.
This doesn’t mean the stock market is a lousy investment, but every investor needs to know the landscape to make informed decisions about where to put their money. And while stock value for real estate companies is on a steep downturn, real estate values keep rising.
Home buyers who locked in a lower rate are understandably inclined to hold onto their investment. But even now, with higher mortgage rates than the past two years, prospective buyers, especially those currently renting, need to know the cost of waiting for home prices to go down.
Real estate vs. the stock market, cash savings, and gold
Investors in stocks have zero guarantee their investment will give them a positive ROI, nor can they predict with any certainty when it’s the best time to invest or cash out.
Cash value decreases as inflation rates go up. And while gold may be more liquid than real estate, it’s also more volatile. Real estate value has increased over time, while gold’s value fluctuates.
For one thing, real estate is the only investment you can live in – or rent out to earn a passive income.
Not only that, but when you buy a house, you lock in the biggest portion of your monthly mortgage payment, effectively shielding yourself from inflation. Renters, on the other hand, often face rent increases yearly.
Homebuyers also have the option, once their property is paid off, of passing it on to their loved ones, providing not only a high-value asset but a place to live.
The nature of real estate makes it the best investment during inflationary times.
No time like the present
Many potential buyers out there are looking at the economy, feeling the effects of inflation, and bracing for a recession. So how do you share this information with them?
They’re looking at the cost of buying a home – at a lower price point than what they could afford last year – and thinking, “Maybe next year will be better.”
You, as the knowledge broker, can help them see what the fear-mongering headlines don’t tell them:
- Why real estate values are going up — not down
- Why housing prices are not likely to go down, either
- Why buying now gives them an advantage over those who wait for lower rates
Unlike the stock market, you can look at the signs and see clearly enough how the advantages of investing in real estate outweigh the costs.
And while the barrier to entry is higher than with gold or cash savings, the returns are also significantly higher.
It doesn’t hurt, either, that mortgage interest is tax-deductible. The more your client pays (with today’s higher mortgage rates), the more they can deduct from their taxable income.
In this case, good things come to those who do their homework and take action.