What will the next housing downturn look like?

[Bob B.]

The entire country has just spent the past decade enjoying one of the longest bull markets of our time.

Financing has been readily available, there have been an abundance of Buyers available for just about any asset type, and supply of assets for sale on the open market has been relatively low!

After years of bidding wars and properties going like hot-cakes over asking price, it’s easy to forget what the market COULD look like if circumstances changed and the market dove into a BUYER’S market.

Let’s look at the two side by side just for some “mental push-ups.”

Situation #1

Seller’s Market (Where we have spent the last 5 - 10 years)

1. Very low inventory (real estate assets available for purchase on the open market)
2. Low cost and easy to obtain
3. Lots of buyers ready to buy

THE RESULT: BUYERS COMPETE against one another in an effort to win the deal and they drive ASSET VALUES UP in the process.

Situation #2

Buyer’s Market (Where I believe we could be headed)

1. Very high inventory
2. High cost and more difficult to obtain financing
3. Very few buyers ready to buy

THE RESULT: SELLERS COMPETE against each other in an effort to win the BUYER. The main way they can compete is to either compromise and LOWER PRICE (price reductions) or TERMS (Seller Financing when possible) or both.

You see, in Situation #1, SELLING is easy but buying is hard. And you’re competing against many, many buyers.

In Situation #2, BUYING is easy but SELLING is hard. You’re competing against many, many sellers.

YOUR MISSION, should you choose to accept it, is to be a BUYER in a BUYER’S Market.

By this point you may be asking yourself, “if buying is easy in a Buyer’s market, why aren’t there more buyers?!”

That is the RIGHT question we should all be asking ourselves. I’m not going to claim I know the exact correct answer to that question, but I will share some thoughts based on the bit of sales and human interactions I’ve seen in my life.

The reality of a Buyer’s Market is that more than likely, we will all be faced with some very big challenges that will be bearing down on us all every single day. It’s our job to “engineer out” as many of those challenges as possible to be sure that we’re one of those buyers standing when it’s time to roll out.

What kind of challenges? I’m just guessing but think things like:

• Falling Real Estate Prices — People don’t want to catch a falling knife... so even thought there may be good buys around them, they may sit and wait.
• People underwater on the assets they already own — This is especially troublesome if these are assets that they HAVE to sell because they either can no longer afford them or their loans/debts/partners require them to sell at a certain time. This is a big one because if people must sell, they’ll be further adding to the inventory and price dropping war goin on in the marketplace causing more downward pressure on asset prices.
• Unemployment rising — Many people will lose their steady employment due to economic challenges during a down market. Without income, they won’t be able to even consider buying a piece of real estate.
• Rising Vacancies - More time and reserves will be sucked up refilling vacancies of resi and commercial spaces than in the bull market. This could become a big distraction, and drain, for many.
• Fear — A general sense of fear may overcome people and when people are afraid, they won’t transact. They will sit and wait.

These are just a few factors among thousands of other influences that I’m sure will impact peoples’ investing and home buying behavior.

We can visualize and see the situation that could potentially come together before us. When? No one exactly knows. The only thing that matters is, will you be able to make certain that YOU are one of those few BUYERS that are out there actively buying when the time comes?

Let me know what you’ll be doing now to make sure you are set up to be one of them in the comments below.