'Tis the Season to Invest in Real Estate
Print media and digital outlets from coast to coast devote December space to their versions of an ultimate holiday gift guide. A quick online search of this year’s hottest items reveals some usual suspects leading the pack: noise-canceling headphones, high-tech fitness trackers, high-end coffee makers, tablets, cellphone cases, beauty products and the latest celebrity fragrances.
While most of these items made for good stocking stuffers, it’s doubtful they added much to your portfolio. Now that the holiday rush is over, savvy shoppers are spending the last week of the year in search of the gift that keeps on giving: real estate.
Many industry experts agree that the weeks before and after the new year are prime times to invest in a residential property. Why? Part of the reason speaks to the emotions often tied to the season. People tend to make life-altering decisions around the holidays. For buyers, this may result in finally pulling the trigger on a purchase that they’ve been hesitant to make for months and months. For sellers, the spirit of the holidays -- and the interest in striking a deal before the first of the year -- may lead to a willingness to negotiate terms.
There also are more practical and business reasons to explore a real estate purchase during the holidays. Among them:
1. When demand goes up, inventory goes down -- and prices climb.
According to data published in November and cited by The Wells Fargo Economics Group Special Commentary, home sales and housing starts will finish on a high note for 2017. Sales of new homes are expected to rise 8.7 percent compared to 2016, and the median price of an existing home is expected to rise 5.3 percent versus last year.
With housing values increasing for a large segment of homeowners, it’s an opportune time for those looking to trade up, downsize or relocate to make their move. Meanwhile, improved perceptions about job security and income growth likely will bolster first-time home buying just as the leading edge of the millennial generation is reaching their late 30s. Buying is becoming a preferred option as rents continue to increase dramatically in major markets -- much faster than the median income.
Add it all up, and the projected economic conditions should increase the demand for home purchases. As inventory declines, prices invariably rise. This is good news for investors who want to flip for a quick profit -- and equally good news for new home buyers who close before the end of the year.
2. The holidays give you the time needed to explore.
I can’t tell you how many times I’ve shown a listing to prospective homeowners that have just finished a long work day. They’re tired. They’re hungry. And they’re not in the right frame of mind to view their potential dream home. Smart investors will clear time over the holidays to do their homework. Because so many of my clients understand how important this is, I’ll have more showings in December than any month of the year. Investing quality time now will pay handsome dividends down the road.
3. There are more open houses.
Another reason why real estate activity spikes during the holidays has to do with businesses that make significant changes late in the calendar year. As a result, employees being relocated have a short window to end one chapter and begin another. These sellers are motivated to move and ready to negotiate. Others sellers are traveling during the holidays and thus more willing to welcome prospective buyers into their homes over the holidays.
4. Analysts forecast a healthy economy.
According to a fall Market Watch analysis, analysts suggested that how markets performed in October would set the tone for the coming six months. When the report was published Oct. 31, the Dow was up 4.4 percent for October, the S&P was up 2.3 percent and the Nasdaq was up 3.5 percent -- it was the biggest monthly percentage gain for all three since February and the seventh straight positive month for both the Dow and the S&P, and fourth straight positive month for the Nasdaq.
Economic strength increases consumer confidence in real estate investment. It also means mortgage rates will continue to rise in a healthy market. As of early December, the average fixed rate was hovering between 3 and 4 percent at an average of 3.92 percent. Experts predict that mortgage rates will exceed 4 percent in 2018. If you decide to wait, you will pay more interest.
Related: My Whole Foods Real Estate Rule
5. Tax incentives abound.
Unlike those last-minute holiday purchases you made at the mall, purchasing a home before the end of the year comes with a bonus in the form of numerous tax benefits. Capital gains taxes can be excluded or deferred, depreciation of property used in an investment or a business can defer some income taxes, interest expenses on a mortgage on a primary or secondary home and home equity loans can be deducted -- and that’s not all. Consult with your CPA and review the IRS tax tips to learn about the full scope of tax incentives you can enjoy from real estate.
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