Surge of Investment Funds in the Market

by Andrea Messenger
May 27, 2005

Investors are buying up property quicker than ever and the Phoenix market is certainly no exception. So where is all the recent investment money coming from? According to The Wall Street Journal, many Americans are using the equity in their homes to invest in real estate.1 Lenders are more than willing to lend money on the equity of homes at today’s low interest rates, thanks in part to the rapid appreciation rates enjoyed by homeowners in many markets today.

Phoenix is one of the 20 hottest housing markets in the country according to statistics from the National Association of Realtors with a 24.4% appreciation in median sales price (from 1st quarter 2004 to the 1st quarter 2005).2 This surge in home prices means more equity with which homeowners are using to borrow against for investing in other real estate.

One economist is concerned that too many people “have relied on home price appreciation to cover their spending.”5 Investment properties or second homes accounted for more than a third of homes acquired in 2004.5 Alan Greenspan, Chairman of the Federal Reserve, said that “there is a little froth in this market” when asked about the ever-rising prices of homes across America.5

Does all this concern mean investors should hold back? Not at all. The availability of flexible and low-payment mortgages allow investors to increase cash flow by leveraging properties.1 And despite the concerns of some, many investors still believe that appreciation will continue with “immigration and baby boomers’ demand for second homes.”1 There will always be gains and losses in the real estate market, and there are never any guarantees – knowing how, when, and where to invest is the key to real estate investing.

Regardless of market conditions and concerns, investors should always seek professional advice in order to minimize their risks and maximize their profits. Attorneys and tax professionals can advise on the legal and tax implications relevant to an investor’s particular situation. Realtors can give the best advice regarding the particulars of their markets and which properties match the needs of each investor. The Jim Messenger real estate team is the right choice for investors in the Phoenix real estate market.

1 “As Prices Rise, Homeowners Go Deep in Debt to Buy Real Estate,” James R Hagerty and Ruth Simon. The Wall Street Journal. May 23, 2005, page A1.

2 “Rapid Rise in Home Prices Spreads,” James R Hagerty. The Wall Street Journal. May 17, 2005, page D2.

5 “A Bubble in the Housing Market? Any Implosion Won’t Be Obvious,” Ken Brown. The Wall Street Journal. May 20, 2005.

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