Let’s see how residential real estate has performed in the past.
When a real estate investor is about to make a purchase decision, what are the factors affecting his or her decision?
There may be much consideration of down payment, management of the property, the location of the property, cash flow, income tax and so on…
However, the overwhelming factor which would affect the decision is the appreciation over time.
Have you not come across someone who made a huge profit in real estate investment from just one property? Or have you not heard anyone talking about how happy downtown condos which appreciated very handsomely in just 5 years. We come across real estate success story all the time.
But those are just stories. Let’s see some historical charts.
Take the Cue from the Past
Average House Price Index of Major North American Cities
US real estate market took a dip because of the financial crisis of 2009. However, after 2012, the prices started rising again.
And this is the factor is all real estate investors understand and rely on. In the long term, there is a very little possibility to lose money in real estate. Any real estate investment made and sustained for long period increase in value most of the time.
If you check the latest trend in residential real estate prices in the US, you would see trend favouring investor’s mindset.
House Price Index
If one would have bought the house at the peak of the market in 2009, the price of that house would be perceived to be significantly down for next few years. But if the investor is able to sustain it for 10 to 15 years, he or she would not lose money as the prices have started rising again after 2012-2013.
It’s apparent from this Zillow Home Value Index chart. It has already recovered to the point at which it started going down in 2009 and it’s rising beyond.
This chart is the aggregate Home Price Index of major Canadian cities.
The Canadian housing market was relatively untouched by the financial crisis of 2009. But you can observe there was a small deep in 2009. At present 2 major Canadian cities, Vancouver and Toronto, are facing some moderation in real estate prices.
One can argue that it’s not 100% guarantee, for the real estate to appreciate.
The real estate investments are business investments. One should evaluate them the same way, one would evaluate any other businesses. You make real estate investment, take the risk to earn profit out of it over the time. Real estate appreciates most of the times if you follow the history.
Governments help to invest in residential real estate
Have you ever heard government pro-actively encouraging you to invest in stock market? NO.
So Why do both the governments of the US and Canada encourage the homeownership, a form of investment in real estate in terms of down payment?
Governments created programs like Fannie Mae and FHA loans in the US and CMHC mortgage insurance program in Canada. These programs are to help and encourage first time home buyers to buy a home for down payment as little as 3%-10%.
Because it’s well established that residential real estate is a safer investment and governments recognize this fact.
There is a general consensus that long-term real estate investment is reliable and safe option to park your hard earned money.
One in 5 retirees in both, the US and Canada are planning to fund their retirement by selling their primary residence. This is the result of the survey conducted by HSBC Bank.There is an increasing trend to rely on primary residence for retirement than on the retirement savings.
It’s not difficult to understand this trend. People consider residential real estate, their own home as one of the safer investment. They can safely rely on the huge pool of equity and appreciation to fund their retirement.
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