If Michael Anthony gave you one million dollars of John Beresford Tipton’s money today, where would you spend it? I saw a trio of experts on CNBC last week talking about which of these three areas was currently the best investment: real estate, gold, or stocks. The experts agreed that stocks are too volatile, but the consensus was that gold (even though it’s expensive) and real estate were best.
Why? Because at some point, we’ll see inflation, and the two best hedges against inflation are gold and real estate.
Even better from our perspective here at DBNR, the experts also concurred on the fact that we’re bouncing along the bottom of the market in terms of real estate value. According to this column from the Bigger Pockets blog, the Commerce Department says the number of vacant homes eclipsed a record 19 million units in the first quarter of 2010. That’s a near-record 10.6% vacancy rate, where 8% is considered normal. At the same time, rental property vacancy rates are hovering around 11%, the highest they’ve been since 1956.
Hopefully, this is the point at which we’ll start to see some bounce back. The CNBC experts predict that both commercial rental and vacant vacancies will decline, which represents the beginning of a cycle where rents increase and property values start to escalate.
Except for one little glitch.
The banks - especially the ones flush with bailout money - don’t seem to be putting it back into the system. We’re hearing lots of anecdotal evidence of loans (especially jumbos) being hard to get, particularly if the applicant is self-employed. The banks are being particularly persnickety about loaning money to people whose income dropped last year - but that includes most of the people we know, whether they’re self-employed or had to take pay cuts.
That actually is good news for DBNR. If people with money can’t get loans, they rent in the interim. The more people who do that, the faster vacancy rates go down and rents go up. And because companies like ours that circumvent the traditional lending process, we can provide housing and rental property for those who want to buy or invest.
The handwriting on the wall is clear. Prices and interest rates are still low. When there’s a sincere recovery, it’s sure that higher interest rates and higher property values will follow. Anybody who can buy now should take advantage of real-estate’s long-term advantages, both as an investment vehicle and an inflation hedge.