Today we’re going to ask the question: Are we at a real estate peak?
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: Well, it’s 2020, and a lot of people said or anticipated that the residential and commercial investment property real estate in the State of Oregon would peak by this time.
Bob Nelson: And it’s interesting, what is peak? Well, that’s a point in time when values typically reverse, no longer appreciate at the same rate. Start to, in fact, appreciate at a lower rate… appreciate means increase in value… increasing at a lower rate, or even decreasing in value. That is not happening in the sphere that I operate, income properties. It has not peaked. It’s nowhere close to peaking. We’ll notice peaking when the interest rates start increasing on loans. That’s going to ice the action for a bit.
Marcia Edwards: We’re going to see slowing in appreciation in residential real estate and that will be attributed to, in part, wages not keeping up with the previous appreciation. So we’ve kept a good clip and in some price points it’s been two digit increases last year, but overall the market’s appreciated at 7%, and this year they’re expecting three to 4%. So a little bit slower, and mostly from affordability. What could peak our market if we had an influx of inventory or a downturn in employment.
Bob Nelson: Well, let’s take a look at that for just a moment. If something were going up at 4%, and I came in with a 25% down payment, that means I’m borrowing 75% from a lender. If the property goes up 4% in value and I came in with 25% down and the property simply breaks even or does a modicum better, I am getting a rate of return that is well in excess of my cost of capital. And as an interest, it’s called positive leverage. The opportunity to borrow money and make a more productive use of that borrowed money than the lender requires in the form of an interest rate, is an extremely positive thing.
Marcia Edwards: And I would bank that in real estate, over stock market and other opportunities, what you’ve got here is an opportunity in so many different directions, not even mentioning the tax benefits that go along with this ownership.
Bob Nelson: Well, and it’s interesting, and those that are oriented toward the stock market are not oriented typically towards real estate. And stock market’s fairly easy. You become market taker, never a market maker. We like the idea of real estate and that you can influence value by how you own and manage the property.
Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30pm on KPNW for the “Real Estate Today” radio show.