Market Timing:  Is It Too Early to Get Back into Real Estate Investing?

September 1, 2022

It’s so painful as an investor when you realize you missed a big opportunity. Even as an experienced investor, I’m no stranger to this hardship. I can remember back in November of 2009 when the median home cost in Winter Park, Florida was $200,000 – those were the days.  Jumping forward to July of 2022, the median cost was recorded reaching $576,200, a whopping increase of 188%.  Yet, at the time of lower costs, investments still weren’t a sure thing, and for most, it took years (and a trend of even higher prices) to get back into the game.

That was then and this is now – each correction tends to look different than the past.  Consider what humorist and writer, Mark Twain, famously said on the matter, “History doesn’t repeat itself, but it does rhyme.”

Now begs the question – what rhymes with 2007 and what doesn’t?

I’ll let you go back and research all the reasons for the recession that commenced more than 13 years ago, but even though we may be seeing similarities, many of the fundamentals of today are different.  The status of our environment and market numbers plays an even more important role.

I’ve included a few key data points that our NuView Trust investors are using as of today to assess their risk/rewards.   

Financial Markets and Indicators

• Mortgage Rates: YTD moved from 3.11% to 5.55% or $143 for every $100,000 borrowed (Freddie Mac)
• GDP: -1.6% and -.09% for the past two quarters, the traditional marker of a recession (Statista)
• Fed Movements in Prime Rate: Expected to end this year at 3.5%, the highest point since 2008 (LA Times)
• Treasury Yield Curve: Currently the 10-year treasury is at 3.046%, lower than the 2-year treasury at 3.423% — often signaling an upcoming recession. (Reuters)
• Stock and Bond Indexes: S&P 500 down 14% YTD (Wall Street Journal)

Business and Labor

• Unemployment: Florida’s current rate is 2.7 %, more than 20% better than the U.S. rate of 3.5%. (Florida Government)
• Job Growth: Risen 4.9% over past year in Florida, compared to 2.5% for the U.S. (Trading Economics)
• Venture Capital Investments: South, FL is up 56% year-over-year, highest VC % growth in the U.S. (ScOp Venture Capital)

Housing Trends

• Housing Starts: Down 28% from June 2021 (Fred Economic Data)
• Median Price: Orlando area is up 16% for the year, but down 2.2% last month.
• Affordability: Ranks 46 out of 100 largest metros, requiring the median household to spend 39% of their income to buy the median-priced home. (Realty Hop)
• Home Ownership Rates: Florida rates are at 67%, compared to the U.S. at 65%. (NAR)
• Rental Prices: Rent in Orlando area grew by 18.7% year-over-year. The average asking rent in Orlando is $1,819. (Orlando Sentinel)

Other Important Variables

Relocations: The 15 months between April 2020 and June 2021 saw a net migration of nearly 300,000 people to Florida, more than any other state. Among those earning more than $200,000 a year, four times as many people moved to Florida as to New York in 2019 and 2020. Florida led the country in income migration, gaining more than $20 Billion in net income from 2019 to 2020, while California and New York each lost almost as much.  

Making the Decision to Invest – it is your personal forecast, based on your personal needs.

If you need a cash out over the next five years, you should be focused on certainty, not hope.  Sometimes what appears to be attractively priced in today’s market may not be six months from now.  Cash flow analysis must include any variability in future borrowing costs not just for the investor, but also the future purchaser of the property.

I remember a property I purchased in Maitland, Florida during the height of the market in 2006.  It was a brand new four-bedroom home in a pocket neighborhood and sold for $315,000 — only about $125 per square foot.  Although my mortgage/tax/insurance caused me negative cash flow, I felt certain that future rent hikes would cover it—or at a minimum, I could resell it for a quick buck.  Unfortunately, the bottom fell out of the market a short 10 months later (I didn’t want to sell it before one year, as I would have had to pay about 30% in income tax, rather than the 15% long-term capital gain rate at that time).

It took over six years to break even, and although my CPA found a way to write off all the losses, it was a painful lesson.  Thankfully, I was able to use my IRA to pick up several properties since then to overcome that lesson.

What should you do as an investor? Every disrupted market is teeming with opportunity, and most solid investment decisions do not require you to time the market and find the absolute bottom.  Use the experts around you, including the fellow members of CFRI to gain their insight, and perhaps seek out a few of us that have grey hair – we have likely seen something like this before.

Glen Mather

Glen founded NuView Trust 19 years ago, a venture that has helped tens of thousands of clients unlock their IRAs and retirement plans to invest in real estate.