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What You Don’t Know About Home Prices Can Hurt You

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Home Prices Can Hurt You

investmentcontrarians.com / By Sasha Cekerevac / March 21, 2013

As the rebound in home prices continues, many people are trying to determine what the best investment strategy is at this point in time.

Let’s take a look at what has happened and what is most likely to occur in the future for home prices to help create a long-term investment strategy.

At the end of 2012, due to the increase in home prices across the nation, 1.7 million homeowners, who were underwater (meaning their mortgage was worth more than the value of their homes) a year ago, had positive equity, according to CoreLogic. (Source: Gopal, P., “U.S. ‘Underwater’ Homeowners Regain Equity as Prices Rise,” Bloomberg, March 19, 2013.)

The rise in home prices continues, as January saw a 9.7% increase over year-ago levels. According to CoreLogic, if home prices rise by five percent more, an additional 1.8 million homes will return to positive equity.

Clearly, there is no doubt that the proper investment strategy over the past year has been to gain exposure to the real estate market, as home prices have increased substantially.

Part of the rise in home prices is due to institutional investors who also have foreseen this investment strategy and have set out to purchase thousands of homes to convert into rental units. Because of the low yields on government bonds, many institutional investors are attracted to the high margins from renting units out as an investment strategy.

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Thanks to BrotherJohnF