Recent price drops in some of the most expensive real estate markets around have people talking about a possible market crash. Some even refer to these recent downturns as a “toxic” or “deadly” spiral due to how quickly prices are dropping.
Many believe that we will see more crashes like this occur in the coming years. Some say we could be looking at a 20% drop in housing values over the next few years!
While a significant decline is not something anyone wants to see, there are some strategies that you can use to make sure your investment does well during such a slump. This article will talk about those strategies.
Remaining confident in the value of your home is one of the first things that can help you stay calm during a down turn. If you have high hopes for the property, you may feel compelled to sell it sooner than expected.
This can cause you to lose money if you don’t know what to expect for resale. Luckily, there are several tools available today that can tell you how much your house is worth. You can pick whichever ones seem appropriate for you and your situation, but all of them cover similar topics.
This article will go into detail about some ways to identify whether current market conditions are healthy or potentially disastrous for homeowners. It will also discuss why potential investors should consider buying instead of selling during a downtrend.
Rising interest rates
With all signs pointing towards higher interest rates, it is important to remember that they do not necessarily mean lower real estate prices! In fact, rising interest rates can actually help you in your real estate investing career!
The more money lenders are willing to give out loans, the more people will start borrowing money, which of course boosts the demand for homes.
In turn, this increase in home buying demand helps fuel upward price movements for existing houses and even incentivizes builders to keep constructing new homes.
If investors are able to pick up very cheap properties with high potential returns, rising interest rates can actually be an asset for them!
Spencer also mentioned the growing popularity of what’s been coined as “alternative investments” like investing in dividend paying stocks or cryptocurrencies. Emerging markets such as Brazil and China have significant amounts of equity that wealthy individuals are looking to invest in.
Another factor that can contribute to sky-high real estate prices is low supply, or how many homes there are in comparison to demand for them.
There’s just not enough housing available to meet the demands of people who want a home.
As we know, most people need a place to live, which means there’s a lot of pressure to own a house – even if you don’t.
That pressure can push up the price of existing houses, and it can create a situation where only rich people can afford a home.
A few years ago, this wouldn’t have been a problem because most families didn’t need as much space as they did 10 years ago. But now almost everyone does!
So there are just not enough apartments and villas and condos to go around.
This isn’t limited to major cities either — even small towns can feel like there’s no room left under the housing market roof.
Demand is high
In fact, there’s a lot of demand for real estate right now. Many would say that we are in an over-heated market where people with large amounts of money can buy as much property as they want.
This isn’t necessarily a bad thing, but it does pose some risks to those who don’t have lots of money to spend. If you do, though, then this is definitely a good time to invest!
There’s always a risk when investing in any type of product, but many experts agree that we are currently in very risky territory when it comes to buying or selling a house.
That doesn’t mean that prices will keep falling forever though. There’ll be a slow decline ahead, and it could get even more dramatic at times. But overall, things seem pretty stable at the moment.
Supply is low
With less inventory coming onto the market, there’s not as much competition for homes looking to be sold. This creates a situation where people are willing to pay more to purchase a home, which can cause an increase in price growth.
When a house comes up for sale, sellers must advertise it to potential buyers. This means putting up signs, posting pictures online and bringing out the “open house” flags.
But most homeowners don’t take this route due to time constraints or because they’d rather sell their current residence instead of buying a new one. Also, some just prefer selling their home directly themselves instead of hiring a real estate agent.
Supply isn’t high enough of a factor when it comes to dropping real estate prices. There aren’t many ways to decrease supply unless the owner decides to give away or even trash the property.
So while there may be a drop off in sales, demand stays strong, keeping upward pressure on prices.
Investors are flooding the market
Recent reports show that while most areas of the country have experienced a steady decline in home sales, some markets are actually experiencing an increase! This is due to investors buying up homes and either improving or remodelling them for rental use or selling them as-is and getting back their investment.
In fact, according to data from Movoto, one of the largest real estate search engines, investor activity has been increasing since May 2018. Between those two months and now, total dollar value of residential purchases made by individuals categorized as “investors” (defined here as people who spent at least $100,000 on a house) rose 13 percent over that time frame.
That may not sound like much, but when you consider that individual homeownership rates peaked during the housing boom, it represents a pretty big shift towards investing rather than owning. And if that trend holds true, it could mean we see even more drops in overall property values in our future.
Given all this talk about investors, how can we tell whether they’re moving into an area or already are? Here are some things to look out for…
It’ll take time for prices to drop
The real estate market has been in a boom state ever since the housing crisis of 2008, so it makes sense that people would be buying as much property as possible before the bubble bursts.
The thing is, even after the mortgage finance system was fixed, there’s still no telling how long the current economic growth will last. We could be experiencing another period of strong GDP growth, or we could see a slump like we saw in the Great Recession.
There are many factors at play when determining whether or not the market is heading up or down, but one major factor is how fast home owners can sell their properties.
If potential buyers have trouble finding a house they want to buy, then the price of houses will remain high. On the other hand, if homes keep selling quickly, then sellers may feel more confident in the market and choose to list theirs lower.
You should sell now
Recent developments have made it clear that the market has hit its peak, at least in some areas. While this is good news for those with property including investors, it may not be such a great thing for everyone else.
If you are still owning real estate or planning to get into the property game, now may be the time to do so!
There’s no need to wait until the markets rebound – you can pick up properties right now for a fraction of what they were sold for last year.
And while many people will tell you that the downturn hasn’t been as bad as we saw back in 2008, I don’t think that’s true anymore. We’re talking about slower growth here, but same size drop-off.
So if you want to stay out of the red, it’s best to start looking now.
Real estate is a good long-term investment
Recent market drops have caused many to question whether or not real estate is a smart investment option. This makes sense! After all, we’ve just experienced our largest drop in history for residential property prices.
Before the recent downturn, most experts predicted that we would see continued growth in real estate over the next few years. Now those same experts are talking about how much lower home values will go!
Some predict that house price drops of up to 30% are possible within the coming year! While this may sound crazy, it is important to remember that we have never seen an extended period like this before.
We also need to remember that even greater drops were once expected. For example, back in March 2008, Merrill Lynch declared that housing was a “death spiral” and they estimated that house prices would fall by as much as 40%.
Just because these predictions seem overly pessimistic now, that doesn’t mean they weren’t warranted then. In fact, several months later, their prediction proved remarkably accurate!
The reason why people are so confident about the upcoming crash is because they use what’s called the discounted future value (DFV) formula.
This can be tricky to understand, but here’s an easy way to think about it. Imagine you bought a house two years ago for $100,000. You now want to sell it for as little money as possible.