Here's Why Suze Orman Says Your Real Estate Investments Are 'Relatively Safe'

There is no doubt that the COVID-19 pandemic has shaken up the economy, leaving many investors feeling cautious and uncertain. However, according to personal finance guru Suze Orman, there is one investment that remains "relatively safe" -- and that is real estate. Orman compared the differences between the 2008 financial crisis to today's housing market in a recent podcast episode.

Inventory is slim

According to Orman, one of the main reasons real estate is relatively safe right now is the unusually slim inventory. Inventory refers to the number of properties available for sale or lease. In 2007, there were 4 million homes in inventory.

Today, there are only 980,000 homes in inventory. However, 43% are under contract, leaving only 560,000 active listings. This means there are about 3.5 million fewer homes available than there were in 2007.

Inventory is slim due to several reasons. Shutdowns and delays due to the pandemic impacted construction, leading to fewer new homes on the market. Inventory is also low because many homeowners took advantage of the record low interest rates in 2020 and 2021.

Demand is high

On top of the limited supply, Orman highlighted that demand has increased significantly. The population has grown by 30 million people since 2007. With more people fighting for 3.5 million fewer homes than what was present in 2007, competition is fierce.

On top of that, the pandemic caused a lot of people to reevaluate their living situations, leading to an increase in demand for single-family homes with more space. Another reason for low inventory is the rise in investors who have purchased single-family homes for rental purposes.

In 2021, investors bought 24% of all single-family homes, representing a significant increase from the 15%-16% per year they bought since 2012. This imbalance between supply and demand has caused prices to rise by 40% since the pandemic, making real estate a potentially booming investment.

Real estate can be a particularly sound investment when supply is limited and demand is high. This is because high demand typically drives up the price of real estate, while limited supply ensures the property is unique and therefore valuable.

Home equity and high interest rates

Orman also highlighted the difference in equity compared to 2007. Currently, homeowners have an average of 58% equity in their homes. During 2007 and 2008, many homeowners had no equity in their homes as they were purchasing interest-only mortgages with no money down. This significant difference in the current real estate landscape makes real estate much more safe than it was in 2008.

During the pandemic, interest rates on mortgages were as low as 2% to 3%. Many homeowners were able to lock in these historically low rates. Since then, rates have skyrocketed to 6.5% to 7%, inflating monthly mortgage payments by $1,000 for a house worth $500,000.

Homeowners who have benefited from low mortgage rates are hesitant to put their homes up for sale due to the increased rates. In addition, investors and home buyers are also less likely to purchase homes since a mortgage is much more expensive. Orman believes that rates are unlikely to drop any time soon, so those who own a home have an advantage they are less willing to give up.

The combination of limited inventory and high demand after the pandemic has created a perfect storm that has sent real estate values soaring. With so few properties on the market, there simply isn't enough supply to meet demand. This has caused bidding wars and driven up prices, making it more difficult for some buyers to find a home within their budget. As a result, according to Orman, those who own real estate right now own an asset with long-term benefits and that remains a relatively safe investment.