Friday, September 4, 2015
By Admin

The recent volatility we have seen in stock markets around the world has inevitably once again focused attention on the strength of residential real estate as an investment.

Stocks have certainly been on a wild roller coaster ride in recent weeks, as uncertainty over the health of the Chinese economy has had a profound effect on investor confidence.

This week has seen press coverage on the resilience of the property market in such times. Articles have focused on the ability of real estate values to rise as stocks fall. Indeed, it is reckoned that, over the past 60 years, residential real estate has performed as well as bonds during times when stock market prices are falling (a bear market).

It could, of course, be pointed out that the Great Recession of 2007/9 was an exception to this trend. However, quotes this week by Professor Robert Schiller of Yale University, a 2014 Nobel Prize winner in economics and co-creator of the Case-Schiller Home Price index, have suggested that this was due to particular circumstances at that time, such as the spectacular collapse of the subprime mortgage market.

Another positive for investors is that the cost of borrowing remains at a very low level. Mortgage rates have barely changed again this week, in spite of a generally upbeat Employment Report that saw a small shortfall in job gains offset by stronger than anticipated wage gains and a fall in the unemployment rate.

As we have seen time and time again in recent years, good news for the home economy gets counterbalanced by discouraging global issues. At the moment stock market volatility is having a neutralizing effect and keeping mortgage rates in check as the attractiveness of investors betting on "safe havens", such as mortgage backed securities, helps to pin rates or make them more likely to fall further.

Recently there has been talk of the Federal Reserve raising interest rates for the first time in many years, which may have a knock-on effect of raising mortgage rates. However, there is evidence to suggest that rates have their own movement pattern, as they have risen and fallen by about two percentage points while the Fed Funds Rate has remained virtually static.

It will be interesting to see if the current turbulence in markets sees interest rate rises put off even longer. Expert opinion differs as to whether or not the current doubts should further delay rate rises, so nothing should be taken for granted.

For the moment, though, residential real estate is once again getting the attention of investors and not just here at home. Widespread press reports have recently speculated that Chinese buyers, who have already spent billions on US property, may be about to launch a second wave of strong buying activity, following a 40% crash in Chinese stocks since June.

Never forget also that rental rates are continually rising!

If you're looking to start or expand a property portfolio contact us today for an in-depth discussion of how to make the most of current opportunities with available property in the Albuquerque area.