What Rising Home Prices Mean for Your Real Estate Investments
It’s no secret that U.S. home values are rising across the board (and if you’re not convinced, ask any frustrated homebuyer who has been struggling for months to find a home in its price range). In November, the National Association of Realtors reported that the average retail price of existing single-family homes rose 99% of 183 markets in the third quarter, with double-digit increases in 78% of those markets.
All in all, the average selling price for an existing single family home increased 16% year over year to $ 363,700 in the third quarter of 2021. And while speeding up prices can be a bad thing for potential buyers, it can be a positive thing for you, as a real estate investor with a real estate portfolio.
However, higher home values can also lead to higher costs on your part. Here are three things that you can expect as an investor in the near future.
Image source: Getty Images.
1. Higher property taxes
When real estate values rise, property taxes rise too. So if you own rental property, you may need to impose rent increases on your tenants to offset your own increasing costs.
You can usually appeal against a property tax increase. Technically, this is still possible on today’s market. But whether you’re likely to win a calling is another story.
To enforce a property tax invoice, you need comparable sales at lower prices. With house price gains so prevalent, you’re likely to get stuck with any property tax hike that’s imposed on you for the time being.
2. More equity to tap into
With home values skyrocketing nationally, US homeowners are now sitting at record levels of equity. Black Knight reports that collective home equity reached $ 9.4 trillion in the third quarter of 2021. That equates to an average available equity of around $ 178,000 per homeowner.
This gives you the best opportunity to develop this equity and use it to expand your real estate portfolio. You can also access some of this equity and use it to renovate an existing property for a much higher rental price for it.
If you have short term rentals in your portfolio, you may want to upgrade sooner rather than later. Due to the recent developments on the COVID-19 front (thanks, omicron), travelers will prefer private rentals to hotels, at least for the short term. Some quick upgrades can increase your nightly rates.
3. More opportunity to sell and go away with a nice profit
There may be a property or two in your portfolio that you have wanted to unload for some time because it has been difficult to find tenants or because you have had a hard time reaching market prices in that particular location. Either way, now is a good time to list a home since house prices have increased and the housing stock is so limited. Chances are, by doing this you will find not only a quick buyer, but one who is willing to pay a premium as well.
In fact, the real estate market is so hungry for inventory that even a home in a less than desirable location could end up in a bidding war. And with mortgage rates still near all-time lows, you can bet that buyers will be willing to compromise when they snag somewhere to call their own.
How long will the high home prices last?
As soon as more stocks reach the real estate market and supply can better meet demand, home values are likely to fall again. But that won’t happen for a long time. The economic and pandemic uncertainty is likely to deter many sellers from listing their homes in the near future, giving you the opportunity to make the most of inflated property prices.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all reflect critically about investing and make decisions that will help us get smarter, happier, and richer.