Some Say the Housing Market Is Poised to Fall Off a Cliff—Here’s How Investors Should Proceed

In This Article

Never before have I seen such a weird real estate market nor such a weird recession. The BiggerPockets Forums are buzzing with debate about whether the bottom will fall out of the real estate market and if so, when.

Is another 2008-like financial crisis and real estate collapse coming? Alternatively, will the market even cool off? Or will real estate prices continue to rise through this recession like they did in the dot-com recession of 2001?

While it’s impossible to say for sure where things are going, we can make a few realistic predictions and act in accordance to the volatile and unpredictable market we currently find ourselves in.

The Economic Outlook for Real Estate Investors

The economy itself, as you have probably noticed, is not doing particularly well. Yes, it has improved recently, but it’s still in bad shape.

Related: Real Estate News Roundup: Demand Outpaces New Construction; Market to Remain Strong Through 2021; Affordability Improving Nationally

Here are a few key statistics:

• Unemployment peaked at 14.7% in April and remained at a very high level of 8.4% in August.
• Many states have eviction moratoriums in place.
• Delinquency is up and some studies predict a major spike in evictions by the end of the year.
• The government has spent about twice as much as it has brought in this year so far.
• Most of the $2 trillion CARES bill has been spent. The $600/week unemployment insurance ran out, and the $300/week will run out soon if not extended.

Yet the real estate market is quite strong:

• Existing home sales increased 24.7% between May and July.
• There are only 3.1 months of inventory (a balanced market is six months of inventory).
• Real estate prices are up over 4% from the beginning of the year.

And despite its biggest decline in history and a deep recession, the stock market is at an all-time high.

While it’s true that the Fed has added an unprecedented amount of money to the economy, can we really expect the real estate market to stay as strong as it has been? Yes, it probably won’t collapse like it did in 2008. But it is, at the minimum, quite likely that the market will at least cool off and likely decline in the near future.

How Real Estate Investors Should Approach the Current Market

So, how should real estate investors approach this market? Well, I would answer the same way that Cold War negotiator James Donovan did to the question, “How do porcupines make love?”

Answer: “Very carefully.”

Related: What Every Investor Should Understand About Inflation

Or listen to BiggerPockets’ own Ben Leybovich, who put it in a more real estate-specific way, “I’ve been at [real estate] since 2006. This market right now is for professionals more so than I’ve ever seen before.”

I would agree completely, as noted in the above video:

“Be more cautious… It’s OK not to find anything. It’s OK to shoot out offers and get nothing for the time being. And if you are a new investor, definitely be careful. This is not the time to overextend yourself or reach on anything.”

My brother and partner Phillip Syrios disagrees ever-so-slightly, contending the most important thing right now is to stick to your straetegy and only do value investing:

“Don’t try to predict the future. Don’t overextend yourself. Buy something that you can you make money from consistently because of the strategy you’re using. And if it goes up or goes down, your strategy is built to take that on.”

In other words, you can’t really predict the market, so use a strategy that can weather any storm.

Still, while we can’t predict where the market will go, we know that the market is very weird and volatile right now. So caution is definitely advised.

What’s your take on the future of the market?

Join the discussion below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.