If you’re like me you’ve been looking forward to a crash for the last 12 years! Ever since the collapse of 2008 real estate investors all across the country have been dying for the opportunity to buy houses at a discount of 20%-70% off in places like we saw in Las Vegs, parts of Texas and Phoenix, AZ.
Why haven’t we seen those prices? When will there be a crash? We know there’s a crash every 7-14 years and yet here we are 12 years into a booming real estate market with a global pandemic, Covid recession in the stock market, increased unemployment and still no sign of a crash insight.
In This Article I Want To Discuss The Five Reasons I Don’t See A Crash In 2020 Or 2021.
I teach a free online training for real estate investors and real estate agents who are looking to be investors or want to learn how to work with investors. I always get the best questions and they often are the inspiration for this blog. I was asked by one of my extremely success students who has grown to become a friend as well, “what do I do if I have a client who wants to wait until the spring to buy their investment property”?
This question came after I made the statement that as a real estate agent your job is to help an investor put in offers within 2 weeks of first contact. I have found that if they aren’t putting in offers in this 2-3 week range they will likely not buy a house. The reasons are for a whole other article, but for now, let’s stick to why there won’t be a real estate crash.
Reason #1 This Is The “Coronavirus Housing Boom!”
For calling the coronavirus housing boom is a time where people realize that they actually need their house. They are getting away from the cities, they are moving towards the suburbs, they are willing to pay more for housing just to get away from people. It’s a time where people are starting to realize the value of their property and their freedom more than just as a place to live somewhere.
Another reason that people are moving to the suburbs is they realize they don’t need their jobs anymore, their jobs no longer holding them in physical place and so they can avoid their commutes. Many people have discovered that the suburbs an outside of cities can be far more affordable and have better school systems. This is a major driver for people with young families and people with higher end jobs or office work that doesn’t require them to be in place
Reason #2 Is Supply And Demand
This is a simple function of economics that means the more supply or available housing in this case, the lower prices would be and on the other side. The less there is of something, the more expensive it is. We’re currently in a state of the real estate market where we don’t have enough housing for the amount of people out of there who are looking for a place to live. This is why we see rents and home prices on the rise. We call this a “Sellers” market, because seller’s are the people who have the advantage.
In to give you an idea of just HOW LOW inventory is we can look at the fact that builders typically in the past would build about 1.5 million houses a year. Now in the last 10 years, however since the recession we’ve only been building 900,000 a year which is a 600,000 house per year decrease! That’s over 6 million houses that are “missing inventory” in the market that should have been in existence!
The reason builders are not building the way they used to is because they got burned so bad in the Great Recession that they decided let’s just do different things, let’s build less let’s be more cautious. Now we’re paying for their cautiousness in home prices .
Reason #3 Housing Prices Are Not Inflated
The cost of building homes is more expensive, the codes are higher, it is costing more to build those properties, the lumber is more expensive, the materials are more expensive, the requirements to build A home now costs more than it did 20 years ago; and so we’re seeing that take effect in how much time is spent in building the property, how much the new materials are costing and, of course, the price of land is going up because they’re not making any more of it, and so we’re seeing all of these price reasons drive the real estate market up.
Reason #4 Interest Rates Are At An All Time Low And They Have Been For Over A Decade Interest. Everybody in real estate knows that interest rates control the price of real estate. As interest rates go lower, prices go up because you can afford more house per month, and as interest rates go up, home prices go down because the home becomes less and less affordable as payments increase.
We’ve been in a long run of low interest rates that I’ve just continuously driven real estate prices higher. Coupled with COVID-19 now interest rates are even lower despite that the FED was attempting to increase earlier in the year.
Reason #5 There Is A Large Pool Of Real Estate Investors And Buyers In The Market Now
Even though we’re at an all-time high for unemployment there are still many stable home buyers who are looking to increase and expand.
In-fact millennials make up the largest demographic of first-time homebuyers. The average millennial is becoming 32 years old and they are the largest generation since the baby boom generation. In fact, they are larger than the baby boom generation.
And if you’ve been in real estate, you know the demographics are 31 years old is the average homebuyer. Millennials will now turning 32 and so they are for the next 5 to 10 years going to be the largest group of home buyers that we have ever seen hit the market and they’re hitting at a time with low interest rates with high demand and low supply .
Bonus Reason #6 Lenders Aren’t Approving Subprime Loans Anymore
The changes due to the Dodd Frank act made everything safer for homebuyers, so the mortgages that are being taken out are real honest payable mortgages. Any person who’s able to approve for them can actually afford an handle unlike the subprime mortgages are being handed out in 2005 and six and seven the mortgage is being handed out now, and for the last decade have been stable steady consistent well documented financially strong people .
What is this all mean for real estate investors who are looking to buy their first investments?!
#1 Don’t wait to buy real estate, by real estate and wait.
#2 Save to invest, don’t save for a rainy day.
#3 Buy an owner occupied multifamily between two and four units.
#4 Start building your cash position, hunt for real estate with a real estate agent, get pre-approved and close the deal.
Don’t wait for this market to drop because I don’t see it happening anytime in the near future but also don’t buy garbage. Evaluate your deals, make sure they cash flow, buy steady and slow and do not, do not over leverage in this market.
The only way you can lose in real estate is to be over leveraged and be forced to sell in a down market.
It can be very tempting to believe that there is a crash around the corner if you are only looking at the media and listening to people who still have fears from the last market correction, but it is important to realize that we are in a very new real estate market. The steps the government has taken after the last crash and even more so during the pandemic have “pushed” our nearly guaranteed crash farther out into the future.
Don’t get me wrong. There will be a series of corrections over the next few decades. Some will be worse than others and certainly right now we do see some real estate sectors like retail, office space and other forms of commercial real estate taking a hit. Which could lead to some lower prices in those sectors, but for the time being, I would venture to say that Residential real estate is still in the middle of the largest real estate bubble the world has ever seen.
Like the childhood game of musical chairs, we are all listening to the music and looking for the right chair or in this analogy, the right rental property. In the words of one of my mentors, “Make sure you have a chair when the music stops”. Buy real estate, but make sure you can afford it for the long run. Make sure there is cashflow and when you have a choice, Always work with the best!
Learn more about my 52 Principles to Wealth and Riches this Saturday at 10am EST: https://gualteramarelo.com/live
Cheers To Your success!