Real Estate IRA – Benefit – Demand Exceeds Supply
The stock market got wobbly in early 2018. But Real Estate IRA investors are doing just fine.
Home sales rebounded 3 percent in February 2018 after a holiday slowdown to reach a seasonally-adjusted annualized rate of 5.54 million homes – soundly beating the consensus analysts’ estimate of a 5.42 million annualized rate of gain. That is good news for Real Estate IRA investors as we head into the traditional spring home sales season
Traditionally the busiest time of year for home sales as families prepare for their house search and move during summer when optimal weather is met with children out of school.
The housing market inventory also increased by 4.6 percent compared to January. It is down by over 8 percent however, compared to this time last year. Meanwhile, demand continues to exceed supply as record employment numbers make it possible for more and more families to qualify for a home mortgage. Though mortgage rates have been trending up, they are still near historic lows, which supports home prices and is leading homebuyers to work to lock in today’s relatively low rates in anticipation of future rate increases. A 30-year mortgage is currently 4.4 percent in late March 2018. That is a 3.78 percent increase since September 2017, according to data from Freddie Mac.
What results is a scarce housing market for a growing number of buyers. Historically, as this continues, house prices increase over time.
Sales increases hinted a regional focus. Home sales climbed in the South (6.6 percent) benefitting many American IRA real estate investors; and West (11.4 percent), while slipping in the Midwest and Northeast colder climates.
The Northeast region was particularly hard hit, with sales falling over 12 percent.
Existing home sales accounted for nearly 90 percent of purchases in February 2018 leaving new-construction homes remaining on the market.
The economy remains strong in the Southern and Western states as these regions continue to experience expansion and employment gains.
The current supply and demand is affecting first-time buyers trying to get their foot in the door. These buyers, represent 29 percent of the market, compared to 34 percent a year ago according to the 2017 Profile of Home Buyers and Sellers published by the National Association of Realtors.
The housing inventory is likely to remain tight for the foreseeable future. The strong job market is causing labor costs to increase, making new homes more expensive to build. Higher interest rates may also negatively affect construction loans, leading to higher hurdle rates on capital and restraining new construction.
There may also be some fallout because of tariffs on steel as other countries retaliate, which could affect commodity prices. It is too soon to tell.
In the jumbo loan market and higher end homes, the recent Tax Cuts and Jobs Act also reduced the favorable tax treatment of home mortgage interest on bigger loans. This may also lead to a modest reduction in demand for homes at the higher end.
From the point of view of the Self-Directed IRA investor, multi-family dwellings and the middle-class market appears to be the place to be.
First-time homebuyers are getting squeezed out, making entry level homes a tough sell. These people will be renting apartments for a while, boosting demand and rents in multi-family buildings.
Wealthier buyers may hold off on buying luxury homes, since they cannot write off the entirety of the interest anymore. But the engines fueling strong demand for a shortage of houses are firing on all cylinders for homes in the middle market.
A Real Estate IRA in many ways is ideal for hold long-term real estate investments. The assets grow sheltered from income taxes. There are no tight timelines to meet or Section 1031 exchange rules to worry about if you want to exit real estate for a while or take your time finding a replacement property after selling an investment. Assets in Self-Directed IRAs enjoy substantial creditor protection.
You do give up the ability to take depreciation – but that is because there is no current tax liability on Real Estate IRA properties to depreciate against!
The biggest downside is that gains in a Traditional Real Estate IRA portfolio are eventually distributed as ordinary income in retirement, rather than as long-term capital gains, taxed at a lower rate. However, gains on Roth Real Estate IRAs grow tax-free and are normally distributed tax-free in retirement, if the asset has been in the Roth IRA for at least five years.
Getting started in Real Estate IRA investing and Self-Directed IRA investing is easy. To get a free investor kit and informational brochure, or to discuss your personal situation with one of our Real Estate IRA experts, call American IRA, LLC today at 866-7500-IRA (472). Or visit us on the Web at www.AmericanIRA.com.