Per the latest House Price Index (HPI) from the Federal Housing Finance Agency (FHFA), home prices increased by 8.2% between November 2021 and November 2022. With interest rates also on the rise, many investors are concerned about their wealth and what these increases mean for the future.
Price Acceleration Affects Investors Differently
Significant price acceleration is always unwelcome news for everyday consumers, including everyone from first-time homebuyers to families looking to purchase a larger home in a different area. Higher prices mean higher mortgage payments, which is compounded even further by rising interest rates. However, investors who have portfolios with multiple properties may see some positive side effects associated with this acceleration. After all, as the value of your properties increases, the overall value of your portfolio increases along with it.
3 Things to Watch for in the Coming Months
The soaring home prices will impact real estate investors in many different ways, but there are three things to consider above everything else: your equity, the potential for profitability, and property taxes.
Due to this sharp home price acceleration, homeowners across the US have access to record equity levels. This is true for everyone, including families who own a single home and investors who own dozens of properties. As of October 2022, the average homeowner was sitting on roughly $300,000 in home equity – a record-breaking number. As home values continue to increase, equity will increase, too. Savvy investors can make the most out of that equity by using it to expand their portfolios with new properties or renovate existing properties.
Long-term investors know what it’s like to sit on unfavorable properties for months (or even years) due to the difficulty selling for market rates or the struggle of finding good tenants. Now that values are up and the housing inventory is limited, now is the perfect time to list those properties and turn a decent profit from them. Sales are still slower than this time last year due to increased interest, but there are still plenty of buyers looking for homes. Families continue to purchase fixer-uppers that align with their budgets, and investors continue to buy new properties that align with their goals.
Higher Property Taxes
The only real downside to price acceleration for real estate investors is the increase in property taxes. Of course, there are numerous factors to consider, including the tax rate in your properties’ locations, the exact amount of value acceleration for your specific properties, and more. If your taxes increase too much, options include appealing the tax hike with the local government or increasing your tenants’ rents just enough to cover your losses.
Home prices are expected to continue rising into the near future, but investors who are prepared for those increases can make the most out of them. Between the increased equity and potential for profitability, most investors continue to find themselves in a great place despite the accelerating values, and savvy investors continue to buy and renovate properties through it all.