Dupre + Scott Apartment Advisors have published an outstanding article on price appreciation and rates of return for different apartment investors throughout the Puget Sound region. The article contains exhaustive empirical analysis that evaluates returns through a variety of holding periods and market cycles. Here are some of the key points:
- For properties purchased from 2006-2008, it will take four to six years to show any meaningful price appreciation
- Properties sold in 2009 saw an average 4% annual price appreciation
- From 2006-2008, no property sold for less than its original purchase price
- The next foreseeable market peak will be in 2017
- Investors buying in 2010 and 2011 will see the strongest appreciation rates
- Properties purchased in the peak of 2007 can still salvage a 5-7% IRR
The message is clear: if you need to sell or refinance in the next three years, do it now. Property values will continue to decline as the rental market softens and interest rates rise. Further, investors who are able to re-leverage their money and begin a new holding period in 2010-2011 will see exceptional returns as market cycles play out. On the other hand, investors who don’t need to sell should prepare to hold their property for another 10 years to see meaningful returns.
You can read the full text article at the following link:
This matches my personal expectation of the market. As I recall historically real-estate follows a 10 year cycle between highs and lows. It will definitely take time to stabilize at the bottom before growth returns, especially given high inventories held by banks.