“What if…”
This is a term used by investors to express regret over past investment decisions that didn’t work out. Many real estate investors bought properties during peak prices in 2007 and believed the market would continue to rise. Some panicked and sold their properties at the end of the 2009 Great Recession. After witnessing the recovery in the real estate market over the past 13 years, an investor might say:
If someone invested in real estate during the pre-recession peak of 2007 and continued to do so today, would they have made a profit or a loss?
The median sales price of homes sold in the United States in the first quarter of 2007 was $257,400. Due to the Great Recession, its price fell to $208,400 in the first quarter of 2009. After that, however, the price gradually rose, recovering the loss at $258,400 by the first quarter of 2013. Prices then rose steadily until the second quarter of 2020, after which they surged. The median selling price for the second quarter of 2022 reached $440,300, up 71% from 2007.
Here is a chart showing these decreases and increases —
Image Source: Federal Reserve Bank of St. Louis
Not only have investors benefited from the rise in property values from 2007 to the present, but rents have also risen over the same period. The average annual rent for single-family homes was $7,884 in 2007. It will jump to $13,968 in 2020, representing a 77% increase. Since then it has gone up a lot.
So what are the lessons of all this? Long-term holding of real estate. Don’t panic when the economy is down. If anything, buy more if you can afford it when prices drop. Then you don’t have to say “if only!”
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