“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” – Franklin D. Roosevelt
Are you interested in purchasing a residential property? However, are you concerned about what the current global pandemic is going to do to the value of properties?
As the quotation highlighted above by Franklin D. Roosevelt notes, there is immense value in investing in real estate because it “cannot be lost or stolen.” And Roosevelt goes onto state that real estate is “about the safest investment in the world.”
Barclay Palmer, in his article titled “Key Reasons to Invest in Real Estate,” notes that there are many reasons to invest in real estate: the most important reason being that property is a reasonably low-risk investment, and its prices are not directly affected by the stock market’s highs and lows.
The new normal
While a small subsector of the US population is staging protests over the fact that most of the United States is under varying degrees of stay-at-home or lockdown orders, most of the residents seem to be settling down to the fact that the only way to contain the rampant spread of the coronavirus is the practice of social distancing. The US and global economy have been shut down with the stock markets sinking to lows that haven’t been seen since the 1918 Great Depression.
Kimberly Amadeo from thebalance.com highlighted the fact that on 9 March 2020, the US stock market crash began with “history’s largest point plunge for the Dow Jones Industrial Average.” However, the DJIA had not reached its lowest point yet. It dropped further on both the 12 March 2020 and 16 March 2020. The first drop was by 7.79%, while the second and third drops were 9.99% and 12.93%, respectively.
Will the market correct itself? History shows that, Yes, it will. However, no one knows how long it will take for the upturn to set in. The world has never been in a scenario where the entire economy has come to a halt and must be rebooted again. Will it start up again? How long will it take to bootstrap? These are questions that economists across the globe are asking. And, the only realistic answer is, time will tell.
The raison d’etre for investing in real estate
Thus, the question that must be asked and answered is that, under the current circumstances, whether it is worth investing in real estate or not.
Ahmed Naneesh, the chief investment officer of a sovereign wealth fund and steward of one of the world’s largest real estate portfolios, notes “that in the past few years, demand for private capital for real estate investment and supporting infrastructure has increased
enormously.”
This sentiment is echoed by Movoto, an online real estate brokerage that has been open for business since 2005. In fact, both believe that “the real estate investment industry will find itself at the center of rapid economic and social change” in 2020 and beyond.
Consequently, it can be argued that 2020 is the best time to invest in real estate, both as a primary residence and as an investment opportunity.
The caveat here is the impact of the COVID-19, the novel coronavirus, on the global economy. And, with people staying at home, it is challenging to view properties that you might be interested in purchasing. The option of virtual viewing using tools such as Zoom, and Skype will probably become part of the new normal.
However, for now, people prefer to visit any property they wish to buy. Consequently, short-term house sales might slow down while people adjust to the new normal.
Nevertheless, the converse also holds true.
The Federal Reserve dropped US interest rates by half a percent on 4 March 2020 in an attempt to stimulate the US economy and limit the fallout from COVID-19. This fact translates into lower mortgage interest rates; thereby, opening the real estate market up to first-time homebuyers who ordinarily would not have qualified for a home loan.
The last time the US Fed dropped interest rates like this was in 2008 just after the collapse of Lehman Brothers. The rationale behind this drop in interest rates was attributed to the fact that “Fed leaders believed it was wise to move quickly as concerns mount about the plunging stock market and a severe disruption in every major economy.”
In other words, the Fed was trying to prevent the US economy from slipping into a recession. Unfortunately, the adverse effects of the coronavirus have forced the US, and the rest of the world, into the worst recession in living history.
But it is important to note that with every crisis, there is an opportunity. Therefore, it is the right time to invest in real estate, principally to diversify your wealth portfolio. History shows that this recession will pass, the economy will reboot, people will find jobs and, while the new normal might not include social gatherings, life will go on.
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