In the current landscape, many homeowners are trapped in their properties due to high mortgage rates and limited housing options. With over 90% of existing mortgages having fixed rates of under 6%, with the 2022 surge in housing prices, with affordability diminishing - over 60 million households have already been priced out of the housing market, unable to find suitable options.
However, recent months have shown signs of change. Real estate prices are starting to decrease, which presents an opportunity for households to reevaluate their investment decisions. Many first-time homebuyers do not consider themselves real estate investors; their primary focus is finding a place to live. They often overlook their financial situation and available options before embarking on their house-hunting journey.
Even those who are knowledgeable about real estate investment may not fully recognize themselves as investors. They understand that a significant portion of their equity will be tied to real estate, but they accept this as part of the homeownership deal. Since the alternative options may involve sacrificing control over their living situation, they turn a blind eye to the potential drawbacks and invest a significant amount of their funds in residential real estate, with no downside protection.
However, this situation is not entirely their fault. The system plays a role in perpetuating these trends. The prevalence of 30-year fixed-rate mortgages, influenced by family and social circles, often leads individuals to follow the same path. Without proper education and awareness, people sometimes make ill-informed decisions. But if there's a widespread belief that real estate investment in owner-occupied residential properties has no downsides, people are in for a surprise.
When we begin to question whether investing our entire fortune in real estate is the best choice, we start making better, well-informed decisions. We realize that the available mortgage products may not be the perfect fit for everyone. It becomes clear that a one-size-fits-all approach is no longer appropriate, and the notion of constant real estate appreciation cannot be taken for granted. First-time homebuyers need to protect themselves against potential downturns and be willing to trade a portion of their home's future value for downside protection, ensuring they retain their stake even in challenging times.
On the other side of the equation, institutional investors are interested in stepping in to fill the gap left by individual homeowners. They recognize the potential of owner-occupied residential real estate as an opportunity to enhance their investment portfolios. This shift can have a positive impact on citizens whose savings and pensions are invested in the financial products managed by these institutional investors.
By investing in diversified real estate portfolios, individuals can hedge themselves against market downturns and benefit when prices begin to rise again. Instead of investing in a single property, their primary residence, they will finally have the option to participate in broader real estate investments. This will allow them to leverage the expertise and resources of institutional investors, diversify their holdings, and potentially improve their overall financial well-being.
The real estate landscape is evolving, presenting both challenges and opportunities. Homeowners, particularly first-time buyers, need to reconsider their approach and make informed decisions about their investments. The participation of institutional investors in owner-occupied residential real estate can bring advantages for both investors and citizens, offering the potential for improved investment portfolios and financial security. By embracing these changes and exploring new channels, households will be able to navigate the real estate market with greater confidence and build generational wealth - a solid foundation for their future.
For more information about how to rebalance the financial system and make more homes more affordable for more people - follow Contigo Capital.