04/27/2022
Should you buy before rates rise or wait for a market crash?
“In terms of property values, I have personal hypotheses about what will happen in the coming years, but those are just my personal opinions. On the other hand, mortgage rates are almost guaranteed to increase. The Fed is insistent on controlling inflation and bond yields are rising rapidly – making mortgage rates go up.
Even if the market does correct in the next year or two, I personally think something along the lines of a 5% correction is more likely than 10%, despite it still being a possibility. A 5% drop, which I’ll call Scenario 3, yields the worst returns of all: $244,000 in profit at a 13% annualized return. This happens because the decrease in prices is not enough to offset the rising interest rates. So, although the difference is negligible in the long run, buying now has a slight advantage over what I think most realistically will happen in the coming years.
All of these scenarios are better than what I think alternative investments offer. With inflation eating away 8% of money’s value annually right now, I feel a strong imperative to invest my money. Cash is losing value rapidly and I don’t want to let my spending power slip away. Bonds have a negative real interest rate (they don’t even keep pace with inflation) and are unattractive.
I do invest in the stock market, but I don’t think I’ll get a 13% annualized return over the next 10 years in the stock market, and I don’t know enough about crypto to put any significant portion of my net worth into that asset class. I’ll admit, I am biased toward real estate because I know it best, but I genuinely believe it will outperform all other asset classes over the next 10 years.”
- Dave Meyers, Real Estate Investor and VP of Data & Analyics at Bigger Pockets.
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