With mortgage rates now at their highest since January 2020, homeowners may worry about a slowdown in demand and a correction in prices.
Briton Hill, President of Weber Global Management, talks to Kitco News anchor David Lin about his outlook for US real estate markets, as well as some of the best real estate investment strategies.
Hill said there are three main macroeconomic forces at play that will affect real estate markets: inflation, supply chain issues and rising interest rates.
“I think overall there is more headwind for greater appreciation in most areas than more tailwind. Over the last four years or so we’ve had interest rates go down and we’ve had a big bull bond market that’s pushed asset prices up and we’re starting to see those forces change a bit and I think a big determining factor will be how is it going to take to end this supply chain crisis,” Hill said. “It puts a lot of pressure on rising property prices because construction costs are so high.”
Rising mortgage rates will not affect all areas equally, Hill added.
“I think it depends on how quickly we see [rates] to augment. If it’s a moderate increase over the next year, I think areas that are still doing well for housing, areas like Utah, parts of California, Florida, are currently experiencing a boom in the housing market. I don’t necessarily see this boom stopping,” he said.
Still, buyers looking to invest in a property that isn’t a primary residence should stay away from commercial space for now, Hill said.
“I think asset appreciation, particularly in the investment sector, may slow. I think the single-family home market will continue to do well and be suitable for most people in most regions, but I really think the biggest risk now is commercial real estate We’ve seen so many people walk away and they’ve managed to do it Companies are now looking at it and saying wow I don’t need to anymore one hundred square feet of office space,” he said.
Rental yield is just as important as capital appreciation, Hill said.
“I think you always have to look at rental yields. I have a good friend in Utah who is a big developer he runs a multi-billion dollar real estate company here and he got burnt out in the 1980s buying real estate just looking for market appreciation price, and he created a thesis: never again will I have him buy an investment property just for the appreciation of the price, it has to bring in something. Even if it doesn’t cover 100% of the overhead, it should at least cover some of it,” he said.
For more information on areas in the United States that have good rental yield, as well as different real estate investment strategies, watch the video above.
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