Real Estate And Retirement: Why 2024 Might Be The Right Time

Let’s face it, 2024 was not a great year for investors. The stock market plummeted 16%, including lots of dips into the bear market territory. Real estate fared a little better, and the median home price hit an all-time high before plummeting sharply as home buying shivered in a high-inflation, high-interest-rate climate.

Due to high pricing, high financing costs, strong competition, and severe economic instability, many real estate investors have remained on the sidelines in recent years, waiting for better purchasing chances. The good news is that 2024 might be when real estate investing re-explodes.

There are many benefits to having real estate in your retirement planning. Here are some of them: 

  1. Diversification: Real estate can diversify your investment portfolio, reducing risk and potentially increasing returns.
  2. Inflation hedge: Rental income and property values may increase with inflation, making real estate a hedge against inflation.
  3. Passive income: Real estate can provide a passive income in retirement through rental income or investing in real estate investment trusts (REITs).
  4. Tax benefits: Depreciation deductions and 1031 exchanges can provide tax benefits for real estate investors.
  5. Long-term value: Real estate is a long-term investment that can appreciate in value over time, providing a potential source of wealth for retirement.

There are other advantages to buying real estate; see: Adding Real Estate to Your Retirement Plans

Here is why 2024 may be a good year to purchase real estate

Rising property valuations and increased demand benefit individuals already owning investment properties in hot real estate cities. 

Nevertheless, it is not the best moment to buy a new home. Strong competition means you’ll be up against several bids, many of which will surpass your intended buying price. It also implies that you will most likely spend extra for the property.

The price of a real estate investment is not the only aspect that influences its profitability. Demand, cash flow, and the cost of borrowing are all critical aspects that influence the return on investment. Nonetheless, the cost is a significant factor. Costs are rising, although many experts and analysts expect a downward trend in 2024.

According to Goldman Sachs, home price growth might slow to 0% in 2024. Some economists are more bullish, predicting that demand and prices will continue rising if interest rates do not rise.

We’re already witnessing a significant decline in demand and, as a result, less competition in the market. There has also been an increase in inventory, which has helped to slow the rate of home price increases, a trend that is expected to continue in the next year. All indications point to a slowing housing market in 2024, which may or may not be accompanied by a recession. Purchasing rental houses at a discount might be a fantastic buying opportunity.

But, there are a few factors to consider.

Although prices may become more accessible in the coming year, rising interest rates will remain a concern. The Federal Reserve has taken a hawkish position on raising the federal funds rate again in 2024, and the federal funds rate does not set mortgage rates but affects them.

Mortgage rates for a 30-year fixed-rate mortgage for an investment property were approximately 7% at the beginning of December. If the Fed continues raising interest rates to combat inflation, that figure could rise by two to three percentage points in the following year. Higher interest rates imply a greater monthly mortgage payment, which reduces the property’s cash flow.

Rental demand is also decreasing. This indicates that investors should be extremely cautious when calculating a rental rate for an investment property in the following year since the rental rate you secure in 2024 might be significantly lower than market rentals today.

Yet, these issues should not deter you from investing. During the Great Recession, rental vacancy and home-buying demand were at an all-time low. Yet, the years followed were among the finest in history for purchasing real estate holdings. We’re still a long way from a massive housing correction like the one that occurred from 2008 to 2012.

When buying, the goal is to focus on cash flow and risk minimization. Those that bought the property with the long term in mind have been handsomely rewarded over 10- to 20 years, and 2024 is expected to present similar chances.