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Should I Buy Real Estate Right Now?

Written by Posted On Sunday, 26 July 2020 05:00
Should I Buy Real Estate Right Now?

YMMV (Your Mileage May Vary), but this is my story, and I'm sticking to it!

Real Estate has been my life since 1975, but would I buy real estate today?

I have been asked this question frequently recently, by several people who know that I am a Certified Financial Planner (CFP) as well as a real estate broker for the last 45 years.

I think about this just about every day on my bike rides. Janie and I are property owners, in California, and have been since I purchased my first property in San Diego in 1976 and Janie purchased her first property in 1967, and I never thought I would say this...

No, I would not buy real estate today, at this moment in history. While there are always exceptions, generally, I would not.

I know...interest rates are at an all-time low, but they will still be low after the election.

Remember, the biggest debtor is the US Government, which cannot afford increases in the debt service right now with everything else that is going on in the economy.

No, I would not buy real estate today.

In light of the state of the economy, our politics, and the raging culture war as we move toward a national election in November, there is too much uncertainty.

No.

I would not buy real estate today, especially in California, even with interest rates at historic lows.

Why so negative when I have always been a strong advocate of investing in real estate, especially in California?

Here are a few things to consider:

• Uncertainty around whether tenants have to pay rent.
• Uncertainty on loan forbearance on loan payments on property.
• Uncertainty about future tax policy, which will depend upon the outcome of the election.• New social gathering rules and regulations which will impact a property's utility (the 4 elements of value: Demand, Utility, Scarcity, Transferability).
• Changing building uses and work habits.
• Massive unemployment for through the end of the year and beyond. For homes to go up in value, there needs to be a demand. Fewer people can qualify for loans when unemployment is high, which will result in a decrease in demand.
• Uncertainty around housing policy, affordability, availability, and homelessness.
• In my home state of California, Government appetite for revenue is out of control and will only get worse. High unemployment also means lower income tax receipts, and the state must generate revenue for its programs, especially its social programs, current and proposed.
• With this great need to "feed the beast" of government, the easiest place for any state to raise money is property taxes, real estate.

In California changes to Prop 13 (which passed by a two thirds margin) are already on the ballot, coming after commercial property, but this is just the first assault. If successful, there will be an attack on residential property. Real estate is the only place the state can go to begin to collect the quantity of revenue it will continue to need. "Under all is the land."

Will there be appreciation in real estate in the next few months? Probably. But if I were seriously considering investing, I would wait until after November.

And speaking of investing, are you rebalancing your investment portfolio?

If you have a 401K or retirement program, are you moving out of the stock market? What investments make sense today, with all of the uncertainty?

Choose wisely. Your future depends on it.

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Saul Klein

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