Real Estate is still a Great Investment


coins and a house and clock

With so much conflicting information about the current housing market, it is easy to get confused. Traditionally, owning real estate has always proven to be a great investment over time. This is true today too, because:

  • Monthly payments are often lower than escalating rental prices.
  • Tax write-offs are higher when owning your own home.
  • Even while markets fluctuate, a rise in equity generally occurs over time.

Many buyers are remaining on the sidelines because of rising interest rates. In their short-sightedness, they compare today’s rate to the interest rate of 2020 and 2021. They forget that the FED reduced the prime rate to almost zero because of the pandemic.

The Benefit of Buying Now

rate chart of interest rates over 50 years

When looking at interest rates since 1971, the average has been 7.78%. Rates are currently below 7%, which is actually lower. The graph above shows interest rates still well below where hey were a decade ago.

Additionally, as buyers retreat, the demand for housing has declined. We are no longer seeing the frenzy of multiple offers, which encouraged buyers to sometimes over-pay for a home. Many purchased homes as-is without inspections.

Reduced demand has also put pressure on sellers to reduce their list prices. The cost of a mortgage may be higher, but the overall price of buying a home can be lower.

There is No Bubble

People think that the current real estate market condition is the result of a real estate bubble, similar to 2008.

The 2008 crash was the result of loose lending practices, which allowed unqualified buyers to own homes. With so much demand, home prices were driven to unsustainable levels. With so many buyers defaulting at the same time, too many homes came onto the market in a short period of time.

Lending is now highly-regulated with strict underwriting processes.

Housing Supply is still Low

Today, there is still a deficit in housing compared to those who want to own a home in California. It is true that home prices are adjusting down from their 2020-2021 highs because of rising interest rates. Although buyer activity has slowed down, the sales activity in Lake Tahoe and the Bay Area has merely returned to normal levels.

Experts say that California needs to create an additional 85,000 units each year just to keep up with expected population growth and demand. We would need to quadruple the current rate of housing production over the next seven years in order for prices and rents to decline.

Lake Tahoe will always have more demand than available homes because of its large feeder market in the Bay Area, Sacramento and Los Angeles. The area offers only a limited supply of homes.

Rising Rental Prices

Perhaps the biggest reason to buy a home today is that rents all over California have sky-rocketed. Over the first half of 2022, rents increased a total of 5.4 percent. Year-over-year rent growth is a staggering 14.1 percent!

When buyers are considering purchasing a home, they need to look beyond today’s mortgage rates compared to where they were last year. Additionally, the cost of renting can be much higher than the monthly payment for a similar property even at an interest rate of 6.8%.

Finally, with so many buyers waiting for interest rates to come back down, they may be waiting for some time. This will only drive rental prices even higher. Those who choose to move forward may be rewarded by purchasing a home at a lower sale price.

Contact me today for more information about the real estate market in Lake Tahoe and in the Bay Area.

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