Is the Time Right for Real Estate?

Written by: John Drachman

Americans are voting in unprecedented numbers – with their feet.

Nearly a third of people surveyed by Harris Research for USA Today confessed they’re thinking seriously about moving to someplace new – as if to say, “If I’m going to be sheltering-in-place, I might as well get comfortable.”

Realizing that having a “home” and an “office” in separate locations may be a vanishing concept, many are lighting out for new territories. And, on the way, they’re sending select real estate prices and values soaring – which attracts even more investors from the sidelines. Headlines published this summer included:

• Record sales, record prices in Colorado’s real estate market
• Real estate sales spike to record high in July despite low inventory in Central Kentucky region
• Florida’s Lakewood Ranch posts record home sales for August
• Chicago real estate market poised for strong September

Many employers agree that the business of living and working has changed forever. Forbes’ Jack Kelly pointed out that “The ability of people to be productive from a remote location has worked so well,” he said, “that Morgan Stanley, JPMorgan and others plan to continue working this way.”

Is the time right for real estate?

For aspiring real estate investors, the question becomes: “Is now the time to invest?” The fact that the United State is officially in a recession both complicates and simplifies the picture. States began shutting down nonessential businesses in mid-March, halting about 30% of economic activity and putting tens of millions of Americans out of work.

When a business-cycle approach to investing in real estate is applied, however, the picture can change. Economically sensitive sectors like materials, consumer staples and health care have historically performed better in the late-cycle phase of an economic expansion. Meanwhile, investments in defensive sectors like real estate which are purchased in recessionary periods like today can be positioned to increase sharply during an early cycle rebound.

Keep in mind that real estate values vary significantly by sector. While rent collections still remain high in the residential market, property prices are sinking fast in the pandemic-plagued retail sector. Investors looking to use real estate to temper the impact of stock market volatility might be better off buying Real Estate Investment Trust (REITs) which have about a quarter of the correlation with the stock market that direct ownership of real estate has. For crystal ball gazers, the real estate sector to choose this summer was Data Centers, which finished the second quarter of 2020 in first place with an 8 percent gain.

Assuming we’ll be in a recession at least for the short-term, CrowdStreet offered a perspective on the opportunities out there: “It is during the recession phase that buyers will have the highest probability of acquiring assets in distressed scenarios. When the recovery phase emerges and the sun begins to shine again,” investors can find themselves well-positioned to sell the property at a profit.

In any high stakes venture like real estate investing, it’s important to focus on your objectives for current income and growth; as well as your comfort with risk. The good news is you don’t have to figure this out entirely on your own. A financial advisor or real estate agent can provide the sounding board you need to take advantage of America’s migratory journey to new locations.

John Drachman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.

Related: Invest in the Forest, Not the Trees