There are times when it seems like nothing can go wrong with the markets. Every financial parameter appears to be working against conventional wisdom. Very low unemployment is doing little to impact wage growth, while the Fed is raising interest rates, but the stock market has been unfazed by this instrument that acts as a financial brake on the economy. Include a massive tax cut that juices an already growing economy and you have the vision of a gravy train that will not stop, until it does. The market had a terrible week fretting about trade war fears on the tariffs on steel and aluminum imports with the reciprocal tariffs by China on agricultural products. While steel and aluminum producers were rejoicing, the stock market, along with manufacturers of products made from these materials together with farmers were singing the blues. If there is a new normal, it’s that there isn’t one. Lack of predictability is the norm. Relationships with U.S. allies ebb and flow, keeping their leaders and the markets uncertain. Finally, Facebook is implicated in a massive data breach. The collective uncertainty leads to selloffs absent concrete market fundamentals.
The Residential Real Estate Investment Antidote
Isn’t this the reason that we invest in real estate? Residential real estate was up 6.3 percent last year per S&P Core Logic Case Shiller. Since the end of the housing crisis in 2011, real estate has been on an upward tick of approximately 7.5 percent per year with very little volatility. That’s just the appreciation factor, and doesn’t include returns from the rental dividend, which have averaged 6 percent nationally since the beginning of 2012. It also has a no correlation with the stock market, a point hammered home recently as real estate continues to gain even as the market has taken a dive. Investment in residential real estate gives us a much needed diversification from the stock market and is also based upon fundamental factors like employment, population growth and growth in real income. These factors don’t change day-to-day or week to week, making residential real estate investments more stable. Furthermore, longer transaction times removes emotional trading in real estate, and there’s more visibility into expected earnings from a real estate investment. There are exceptions to this rule of course. The Bay Area is a good example where lots of money is chasing too few properties in an overheated housing market. Single-family homes are being acquired at $500,000 over asking price in some cases. Tech boom equals real estate boom. This is why where you buy single-family investment properties is critical. Not all areas of the country are overheated. HomeUnion uses its Big Data algorithms to select the right markets, the right neighborhoods, and the right properties in those neighborhoods that have the best returns. We follow those age-old cardinal tenets of real estate investing – location, location, location.