by David Drake
The effects of falling oil prices on the U.S #economy has dominated the front burner of economic discussions in recent times. The price of crude oil has fallen by about 50% since mid last year. This has in turn led to a drop in the price of gasoline to levels below what has been experienced in the past 5 years.
Economists generally believe this trend will have some positive effects on the nation’s economy, impacting households and various industries in different ways. But what effects will this have on the real estate industry in 2015?
According to Kevin L. Kleisen, business economist at the federal reserve bank of St. Louis, falling oil prices may lead to an increase in housing demand through lower nominal interest rates. This is good news for real estate #investors as increase demand means increase in the prices of housing which in turn leads to higher returns on #investment, other things being equal. BAML’s Chris Flannigan has also added that mortgage rates could also be affected, dropping to between 3.25% and 3.5%.
Although the value of real estate is expected to fall in oil producing states such as Houston, the overall growth prospect of the market in 2015 should still remain bright.
An increase in the disposable income of households has also been associated with a fall in oil prices. Households in the U.S are expected to have around $170bn more to spend in 2015. This amounts to about $700 for every household, representing a 2% increase in their disposable income. While this increase might be considered marginal, it sure makes some extra dollars available for investment purposes if it is sustained.
This is therefore an opportune time for both average and high income earners to begin to add to their investment portfolios with their gains in disposable income instead of increasing consumption. According to Maritza Cabezas, Senior Economist at ABN AMRO insights, increases in disposable income might not lead to higher savings (and in turn, investments) by households because data for the fourth quarter of 2014 shows that consumer spending has been increasing at a rate not witnessed since the recession.
Taking Advantage of the Recovery in the Real Estate Asset Class
While various asset classes have experienced recovery in their value in recent times that of real estate has been quite phenomenal.
The US real estate market has become a hotspot for real estate investment activities in the world, attracting millions of dollars from foreign investors. Total foreign investment into the US real estate market in 2013 stood at $37.8 billion. This is set to increase as investors from countries like Canada and China are increasingly placing more funds into the US #realestate market, which is presently worth over $11 trillion. Foreign investors have been attracted to the high returns on investment in the US property market as a result of the stability that has returned to the economy.
According to the USC Lusk Center for Real Estate, household formation in the U.S is growing at a rate of one million households per year; a level only witnessed before the 2008 mortgage crisis.
This is predicted to increase as an improving labour market could drive up wages, triggering further increase in homeownership.
While investing in real estate has traditionally been the exclusive preserve of the wealthy, through crowdfunding, even average investors can now participate.
The losses in investment suffered by families in the wake of the financial crisis coupled with the accumulating credit card and student loans debt (both placed at about $2 trillion by households in the economy) has placed many in a very precarious situation financially.
Consequently, the present increase in disposable income and general improvement in the economy is an opportunity for households to rebuild their investment portfolios and secure their financial future.
Benefits of Investing through Crowdfunding
Investing in real estate through crowdfunding portals doesn’t cost a fortune. With as low as $100, individuals can participate in high profile crowdfunding deals using a platform like Fundrise. Other platforms like Realty Mogul, iFunding, Groundbreaker, RealCrowd, Crowdstreet, Groundfloor, American Home Owner Preservation and Prodigy Network charge higher amounts as minimum investment, which range between $1000 and $10,000. However, these are still reasonably low amounts considering the fact that average returns on investment on these platforms range from between 10 to 14 percent.
As a result, the diversification of a portfolio across various properties in order to mitigate risk is more possible through crowdfunded deals.
Note: This article originally appeared on Investor Intel with this link http://investorintel.com/market-analysis-intel/why-2015-is-the-best-time-to-get-into-real-estate-crowdfunding/ on March 12, 2015.
Featured Image credit to moneysense.ca
David Drake is the Chairman of LDJ Capital, #private equity advisory; Victoria Partners, a 110 #family office network; Drake Hospitality Group; and The Soho Loft Media Group with divisions Victoria Global Communications, Times Impact Publications, and The Soho Loft Conferences. Reach him directly at David@LDJCapital.com.