It's no secret that U.S. property values are up across the board (and if you're not convinced, ask any frustrated homebuyer who's been struggling for months to find a home in their price range). In November, the National Association of Realtors reported that during the third quarter, the median sale price of existing single-family homes rose in 99% of 183 markets, with double-digit gains in 78% of those markets.
All told, the median sale price for an existing family home climbed 16% during 2021's third quarter from a year prior, bringing that number up to $363,700. And while price acceleration may be a bad thing for prospective buyers, as a real estate investor with a portfolio of properties, it may be a positive thing for you.
That said, higher home values could also lead to higher costs on your end. Here are three things you can expect as an investor in the near term.
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1. Higher property taxes
When home values soar, so do property taxes. And so if you own properties you rent out, you may need to look at imposing rent increases on your tenants to compensate for your own rising costs.
Normally, it's possible to appeal a property tax hike. Technically, that's still possible in today's market. But whether you're likely to win an appeal is another story.
To argue down a property tax bill, you need comparable sales at lower price points. Because home price gains are so prevalent, you're likely to get stuck with whatever property tax hike is thrown at you for now.
2. More equity to tap
Because home values have soared on a national level, U.S. homeowners are now sitting on a record level of equity. Black Knight reports that in 2021's third quarter, collective home equity reached $9.4 trillion. That represents an average of around $178,000 in available equity per homeowner.
That gives you a prime opportunity to tap that equity and use it to expand your real estate portfolio. You can also access some of that equity and use it to renovate an existing property to command a much higher rental rate for it.
In fact, if you have any short-term rentals in your portfolio, you may want to upgrade them sooner rather than later. Due to recent developments on the COVID-19 front (thanks, omicron), travelers may, at least in the near term, favor private rentals over hotels. Doing some quick upgrades could make it possible to boost your nightly rates.
3. More opportunity to sell and walk away with a nice profit
There may be a property or two in your portfolio that you've been seeking to unload for quite some time because it's been a struggle to find tenants, or because you've had a hard time commanding market rates in that specific location. Either way, with home prices being up and housing inventory so limited, now's a great time to list a home. Chances are, if you do, you'll not only find a quick buyer but one willing to pay a premium.
In fact, the real estate market is so starved for inventory that even a home in a less-than-desirable location could end up in a bidding war. And since mortgage rates are still sitting near historic lows, you can bet that buyers will be willing to compromise if it means snagging a place to call their own.
How long will high home prices last?
Once more inventory hits the real estate market and supply is able to better meet demand, home values should start to creep back downward. But that probably won't happen for quite some time. Economic and pandemic-related uncertainty will likely keep many sellers from listing their homes in the near term, which gives you a chance to make the most of inflated home prices.
