Record High Real Estate

Uncover the dynamics behind the flourishing U.S. real estate market! In May 2024, median existing-home prices reached unprecedented levels, transforming the landscape for buyers and sellers. This newsletter delves into the factors propelling this trend and offers insights into the evolving housing market.

Home Prices Hit Record Highs

The median existing-home price for all housing types in May was $419,300, the highest price ever recorded. This is an increase of 5.8% from one year ago when the median home price was $396,500, according to the National Association of Realtors (NAR). Current home prices are more than 50% higher than they were five years ago.

All four U.S. regions registered notable price gains in the housing market in May 2024, highlighting a robust national trend. Leading the pack was  the Northeast, which saw the most significant increase, with the median home price soaring to $479,200, reflecting a substantial 9.2% rise from the previous year. The Midwest followed, where the median home price climbed to $317,100, a solid 6.4% growth. The South experienced a more moderate increase of 3.6% year-over-year, with home prices reaching $374,300. Meanwhile, the West maintained its status as the region with the highest median home price at $632,900, but still managed to grow by an impressive 5.5%. These figures underscore the dynamic nature of the U.S. real estate market, with all regions benefiting from price appreciation. See the chart “U.S. Median Home Price by Region” for details.

In May 2024, the U.S. real estate market faced a significant shortage of homes. According to recent reports from the NAR, the inventory of available homes stood at just 1.4 million units, well below the 2 million units typically needed to meet demand. This 30% shortfall in inventory contributed to the upward pressure on home prices across all regions, as evidenced by the substantial year-over-year increases reported.

Several factors are driving this heightened demand for homes. First, the ongoing trend of remote work has allowed more people to move away from urban centers to suburban and rural areas, driving demand in these areas. Additionally, the millennial generation, now in their prime home-buying years, continues to enter the housing market in large numbers. In fact, NAR data indicates that millennials accounted for 39% of home purchases in May 2024, a year-over-year increase of 2%. Furthermore, first-time buyers made up 31% of the market in May 2024, up from 28% the previous year, marking a year-over-year increase of 3%, and highlighting the growing interest among new entrants to the housing market.

If the Federal Reserve were to lower interest rates in 2024, the U.S. real estate market could experience significant changes. Lower interest rates generally make borrowing cheaper, leading to lower mortgage rates for homebuyers. This reduction in borrowing costs would likely increase housing affordability, enabling more people to enter the market. As a result, demand for homes could surge, potentially driving up housing prices further.

U.S. Real Estate as a Prime Investment Opportunity

The stock market's recent behavior highlights the appeal of the booming U.S. real estate market as a superior investment opportunity. Despite Wall Street's climb to record highs, the S&P 500 has experienced an unusual period of stability with no sell-offs of 2% or more for 377 days—the longest stretch since the financial crisis.

Many investors consider the CBOE (Chicago Board of Exchange) Volatility Index (VIX) the de facto fear gauge on the Street. In May 2024, it hit its lowest level since  November 2020. On July 3, 2024, it traded near historically low levels at around 12. The low VIX reflects the options market’s complacency.

This stability, however, has been largely driven by an overreliance on megacap tech stocks like Nvidia, which have seen significant investor interest amid bets on artificial intelligence and tech innovation. This concentration on specific sectors has led to a lack of broader market momentum, potentially masking underlying economic uncertainties and vulnerabilities.

In contrast, the U.S. real estate market is thriving, offering more tangible and diverse investment opportunities. As detailed in the "Home Prices Hit Record Highs" section, all four U.S. regions have registered significant price gains, driven by robust demand, limited inventory, and the increasing number of millennial and first-time buyers. These factors underscore the dynamic and resilient nature of real estate, making it an attractive option for investors seeking stable and potentially lucrative returns. The ongoing trend of remote work, coupled with demographic shifts, further bolsters the long-term prospects of the housing market, positioning it as a compelling alternative to the stock market's current low-volatility environment dominated by tech sector optimism.

What Does it Mean for Investors?

Given the current landscape, where the U.S. real estate market is booming and the stock market is showing signs of overreliance on specific sectors, investors are prompted to reassess their strategies. The recent record highs in home prices, driven by robust demand and limited inventory, underscores real estate as a strong investment avenue.

One such avenue is our first trust deed lending program, which offers a conservative lending approach at low loan-to-value ratios of 65% or under. This strategy leverages the current shortage of homes and high demand by ensuring that the burden of dealing with property issues falls on the borrowers and insuring payment to lenders regardless of property occupancy. These investments, which are particularly favorable in landlord-friendly states, provide stability and security in the current market. With millennials and first-time buyers increasingly entering the market, the demand for housing is expected to remain robust, further solidifying first trust deed lending as a prudent investment choice.

Safeguard presents an opportunity with competitive rates starting at 10-12%, providing investors a low-risk ownership experience. By opting for lending over traditional landlord responsibilities, investors position themselves favorably in a high-interest environment where borrowers compete and lenders prevail.

Backed by 20 years of expertise in matching lenders and borrowers, our team at Safeguard is dedicated to helping investors maximize their returns. Whether through a call or email, reach out to Safeguard today at 877-280-5771, and let's collaborate to ensure your money works for you.