Real Estate Prices Are Not As Transparent As We Think
Real Estate was always seen as an investment that will never go bust. People also saw it as a tool that will give you increased returns and that too in a short time. More than mutual funds or share markets, people looked at putting their house for sale to get maximum returns. But that is not the whole truth
The price of real estate indeed tends to increase over time. But if there are any economic slums or recession, the price crashes very badly. And this can severely dent your financial health. Also, the home prices do not reflect the actual but the notional value of the land it is built on. And a lot of it has to do with the sentiment. So when the sentiments are positive the prices will rise. But when they turn sour the home value nosedives. The 2008 recession and subsequent economic crises have told us that most of the house values are inflated.
Supply And Demand
Another thing that can affect your home value is the demand and availability of real estate units. This might happen even when there is no recession. Your house might be at a prime locality, but if there is no demand then the price will also below. The demand and supply also depend on the economic scenario. When people don’t have enough money in their hand, they won’t think of buying when someone put their house for sale. They would have a saving mindset. Even then real estate companies may not reduce prices drastically. They are also looking to get some profit. So there may be a lot of unsold units but the companies will keep their prices inflated. Of course when the demand is high and supply is low then the prices will be exorbitant.
Good Investment Strategy?
Buying a house as an investment measure has its plus points. You are investing the money in a tangible asset. The value of this asset can increase dramatically if the investment climate is good. But there are many disadvantages as well. A house is not as liquid as financial instruments like shares. In case you need money immediately for emergencies then you cannot get it by selling your house. Plus the prices fluctuate a lot which can also be very distressing.
Real Estate is a market that may show you astronomical and unreal prices. Those prices are also very attractive. But it can all become a pipe dream as soon as the economy crashes. The reality is that these prices are not as transparent as we think.