Optimistic about the current market

With housing prices feeling the strain, some economists predicting interest rate hikes and a possible double dip in the market, there does not seem to be much about the current housing market to be optimistic about, or is there?  

Peter Gilmour, Chairman of RE/MAX of Southern Africa, says that globally most people, if not all people, aspire to homeownership and the South African consumer is no different - we want to own a home that we can call our own.

“Property is the most fundamental asset class known to man and is the most prolific way of building wealth, if it is handled correctly. For example, while many consumers may have lost confidence in the housing market due to the recession and the poor performance of property over the past few years, this lack of performance was often a result of property investments not being handled in the right way,” he says.

“Ideally property should be viewed as a long term investment. A buyer should purchase a house they love in a good location that they also love and stay there for many years and pay off the bond. That way they will end up with a paid off asset that they can live in rent free in their old age and they can pass it down to their children. Alternately they should buy a piece of real estate as a buy-to-let investment that they can rent out and again have as a paid off asset in their golden years,” says Gilmour.

According to Gilmour, many consumers, particularly in the US, had deviated from the correct way to view property and used their properties as a cash machine of sorts and lived off the home equity with the view that housing prices will always go up. “It is true that housing prices will always go up over the long term, however not at the 15% a year mark that some expected. It is more likely that prices will increase by margins of between 3% and 4% a year with ebbs and flows in the market cycle. Some buyers were looking to double their money in a seven year period, which wasn’t the case.”

Gilmour says that while historically property has always seen bust and boom cycles, over the long term it has out-performed most of the other asset classes. “It follows that the more drastic the boom period, the more drastic the correction and bust period will be. However, despite these ups and downs, property continues to be a cornerstone of wealth creation. The long term trajectory of appreciation in the housing market has always been positive and will continue to be positive if it dealt with correctly,” he notes. “Investors who can take advantage of the current conditions should instead of letting the bust period keep them out of the market and risk missing the benefits of the next boom.”

While slumps in the market can happen almost overnight, recovery does take a bit more time and we are definitely headed in the right direction. “One of the positive aspects of the drop in prices is that the housing market has been opened up to buyers that were previously unable to purchase property due to the exorbitant prices that were experienced during the height of boom.  But most importantly, property owners should remember that like any other investment class, property is cyclical and although markets are down now – they won’t stay that way,” Gilmour concludes.

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