Over the past few months the most frequent question I have been asked is, “Should I sell my property now?” While this is never a straight forward question because there are too many other factors which are involved with selling (i.e. Tax consequences, estate planning, family matters, etc.), what I realize is that many apartments owners want to know if the market is at a peak.
Remember the “buy low, sell high” theory?
I’ve been tracking the apartment sales since the early 1990’s and in the past 20 years, we are currently at the highest we have ever been for apartment prices (in terms of price per unit). We will continue on this trend? No, we won’t.
There are always peaks and troughs and we are at the peak. We have surpassed the pricing bubble of 2006 and while I don’t see us being in a bubble now, I do believe our current level of pricing won’t continue much longer.
What has driven a lot of the growth this time is a combination of historically low interest rates and a strong rental market. Simply put, as rents for properties increase and interest rates for loans decrease it creates a larger surplus (or cashflow) for investors, thus allowing them to pay higher prices.
If you factor in the low inventory of apartments with no new supply being built we have a perfect environment for an owner wanting to sell. However, we have already seen signs of this trend changing. For example, although interest rates are still comparatively low they have already risen over 100+ basis points since the beginning of last quarter and, they will likely continue to rise moving forward.
Further, apartment rents have also been slowly reaching a tipping point and won’t continue without significant upgrades to properties to justify the increase. For apartment owners who are thinking about selling at the peak, the window of opportunity is closing and coming to an end.