With mortgage rates now at the highest level since January 2020, homeowners may be worried about a slowdown in demand and a correction in prices.
Briton Hill, president of Weber Global Management, discusses with David Lin, anchor for Kitco News his outlook for the real estate markets in the U.S., as well as some of the best property investment strategies.
Hill said that there are three main macroeconomic forces at play that will affect the real estate markets: inflation, supply chain issues, and rising interest rates.
“I think overall, there’s a greater headwind for further appreciation in most areas than further tailwind. For the past four or so years we’ve had interest rates falling and we’ve had a great bond bull market that’s pushed asset prices up and we’re starting to see those forces change a little bit and I think a big determining factor will be how is it going to take to get this supply chain crisis under wraps,” Hill said. “That’s putting a lot of pressure on shooting house prices up because building costs are so expensive.”
Rising mortgage rates won’t affect all areas equally, Hill added.
“I think it depends on how quickly we see [rates] rise. If it’s a moderate increase over the course of the next year, I think that the areas that are still doing well for housing, areas like Utah, certain areas in California, Florida, they are booming housing markets right now. I don’t necessarily see that boom coming to a halt,” he said.
Still, buyers looking to invest in a property that’s not a primary residence should stay away from the commercial space for now, Hill said.
“I think that asset appreciation, especially in the investment sector, could slow. I think the single-family home market will continue to do well and be okay for most people in most areas, but I really think the biggest risk now is commercial real estate. We’ve seen so many people go remote and they’ve been successful in doing so. Businesses are now looking at things and saying wow, I don’t need a hundred square feet of office space anymore,” he said.
Equally important as capital appreciation is rental yield, Hill said.
“I think you always need to look at the rental yields. I have a good friend in Utah who is a massive developer, he runs a multi-billion dollar real estate company here and he was burned in the 1980s buying real estate simply looking for price appreciation, and he created a thesis: never again will I buy investment property solely for price appreciation, it needs to bring in something. Even if it’s not covering 100% of the overhead, it needs to at least be covering a portion of it,” he said.
For more information on the areas in the U.S. that have good rental yield, as well as different real estate investment strategies, watch the video above.
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