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Flourishing real estate investors often cite timing as their secret to success. Acquiring property during a time when the market is starting to improve is a way to ensure control of the market when it starts booming. However, knowing the opportune moment to invest in real estate is more difficult than it seems. With various factors such as politics, the economy, and fluctuating prices, reading the market becomes a cryptic task.
Learn to Read the Signs of a Burgeoning Real Estate Market
Mercer Vine’s list of reasons why now is the time to invest in L.A. real estate is designed to help readers decipher the current state of the market. Increases in rental demand, a changing tax code, and rising interest rates are all signs that point to a healthy year for luxury real estate in L.A. Read on for further details about L.A.’s real estate market in 2017.
1. Interests Rates Will Rise Later in the Year
Experts predict that the Federal Reserve will raise interest rates at least three more times in 2017. In December 2016, the reserve raised interest rates for the second time in ten years. Although it may cause some buyers to be priced out of the market, rising rates are generally welcomed since they are a symptom of a healthy, prosperous economy. It should be noted that even though rates are rising, they are still rising at historically lower increments compared to previous years. Interest rates are predicted to stay below 4.3 percent on 30-year mortgages.
2. More Available Credit for Home Financing
More available credit this year means that financing a home will be much easier in 2017 than in previous years. It may also be the key for some buyers to combat rising interest rates. Credit availability increased dramatically in 2015 under the Obama administration, and the trend is likely to continue this year. Fortune Magazine reports that the Federal Housing Administration is likely going to lower fees for first-time homebuyers, thus making financing a home more accessible to a larger pool of buyers. The magazine also reports that mortgage giants Fannie Mae and Freddie Mac will begin to finance larger mortgages in 2017 – a move neither company has made in over a decade.
3. The Tax Structure is Going to Change for The Better
U.S. News predicts that Trump’s administration will alter the tax structure, and the result will be fewer business regulations. During his campaign, Trump’s extensive knowledge of the tax code (and especially how it relates to real estate) was championed as one of the cornerstones of his platform. Deregulation and altering the tax structure will “allow lenders to be more liberal with underwriting standards, and allow more nontraditional lenders to enter the residential lending markets,” says Allan Glass, founder of ASG Real Estate in L.A.
4. Home Prices Are Going to Rise
Another reason to invest in real estate in 2017 is the inevitable rise of home prices. A factor of particular interest to financial experts, however, is the job market and its effects on real estate. In the first months of his presidency, Trump is focusing on bringing back jobs from overseas. If the President succeeds, U.S. News predicts that his “initiatives should create diverse employment and lead to higher property values across the board.”
Higher employment rates in the U.S. would ultimately result in a higher standard of living and, of course, the homes that cater to that lifestyle. Jim Jacobs, a partner at Focus Insite, explains “the real reason you buy real estate is appreciation, and right now the juice has been squeezed out of the orange.” In short, if buyers plan on investing in the real estate market this year, it is better to purchase sooner rather than later when interest rates and home prices are expected to rise even more.
5. Improving Industry Policies
If there’s one characteristic that the country can agree on about Trump, it’s his partiality towards the real estate market. As a former real estate mogul, Trump is going to be very interested in improving the outlook for real estate. Furthermore, the president is surrounding himself with mentors and a cabinet that will likely favor real estate investments. One example of this can be seen in Trump’s plan to raise tariffs on imported goods. Higher tariffs on foreign products will naturally encourage Americans to buy local products, especially with regards to building materials like lumber.
6. The Rental Market Is Growing
The rapidly growing rental market is another reason to invest in Los Angeles real estate in 2017. According to Housingwire.com, the number of dilapidated properties is decreasing, which effectively raises the price average of rents. The single-family rental is especially experiencing a rapid increase. The improving economy is likely the main reason for the sudden demand. As smaller families begin to find jobs and earn more, they eventually start looking for a place of their own. However, due to the scarcity of apartments and the difficulty in obtaining mortgages, competition for rental spaces is driving rents higher. Investing in apartment complexes or multiple housing units at the beginning of the year is an excellent way to gain some traction in the current Los Angeles real estate market.
7. Foreclosure Rates Are At a 16 Year Low
Another sign that the economy is improving is the decline in foreclosure rates. In 2000, the number of foreclosures was 114,310. During the recession, foreclosure rates were at an all-time high at 650,000. Last year, however, foreclosures dramatically dropped to 77,657. Like so many other indicators of a healthy market, the small number of foreclosures indicates that buyers should invest in properties soon before the market starts booming.