The real estate market will always go up and down given enough time. All we can do is keep an eye on the macro trends and adjust our investing accordingly.
Median Income vs Home Prices
The below chart speaks volumes to and leads me to be more prudent in the deals on I take on. Remember, we can invest in any market. The key is to BUY RIGHT – which is the number one thing I teach and preach.
The chart is showing us the Case-Shiller home price index vs. the median household income for the U.S.
Notice how income (red line) is above the home price index (blue line) from 1980’s all the way until roughly 2003 at which point homes prices blew past the growth of median income.
We all know what happened five years later which led to the crash in prices as seen in the chart until they become level with income growth again.
That only lasted a few years before prices began to accelerated faster again.
Warning sign, possible?
We can see over the last five years home prices running away from median income growth. Granted it is not to the extreme we saw in the mid-2000s but it is disconcerting given the previous instance.
Prices could continue higher, but is this really the time to be super aggressive and fully leveraged? It’s worth thinking about.
So be sure to buy right – meaning properties with solid numbers that cash flow well and help you weather any potential storm down the road. Use the free property calculator to ensure the numbers on a deal work!
If you don’t know what it means to buy right then check out the ScaredyCatGuide to Investing in Rental Properties Video series (and get a free coaching call) or give the book a read.