How do real estate cycles impact your decision making?

Question

I am currently learning about real estate cycles and wanted to see if others follow this data to help them strategically plan their investments?

I feel like my market is in an expansion phase but with the fight on inflation and raising interest rates, this will hinder many new home buyers out of the market. So are we going into a hyper-supply stage ( i don't think so because my market seems to be building new homes and lacking supply to meet demand)  or are we in a recession stage ( due to interest rate hike, many will not be able to purchase homes, so supply will slow as demand falls?)

Would love to get thoughts and how real estate cycles impact your decision making for investments? Specifically, do you switch tactics from flipping to maybe buy and hold?

Nick Robinson · Answer

@John MartinezI completely agree with @Nathan G. that now would be a very risky time to try and flip a house.  The lack of housing units and low interest rates have put a lot of demand in the market that has increased home prices substantially.  I do not see a major increase in the amount of supply coming into the market but that is not the only thing that can slow down or crash demand.  If interest rates continue to raise it will slowly start eliminating some buyers and there will be a point when the monthly payment will get so high that there will not be any buyers for that property at that price.  Who knows what that interest rate will be to crush demand?  The other question we are running into is we are not just answering an economic question but a political question as well.  The FED has backstopped the market since the GFC slashing interest rates, QE, etc.  The government is doing everything they can right now to give people free money.  Will the FED continue its hawkish stance even when the system starts to break because over the past decade the CPI numbers have been low but now you have 8.5% CPI.  Will the governments continue to keep trying to pass stimulus after stimulus for "COVID" relief?

You're in Texas so you may have not heard but in the People's Republic of CA the governor wants to give us $400/car that we own, and the city of Palm Springs wants to give every transgender and non-binary person $600-$900/mo.  I have also seen LA and other cities trying to roll out UBI for select groups of people.  I am not even debating whether you agree with these policies or not from a humanitarian, political or personal perspective.  All I am pointing out is that if you have a supply problem in the economy, so you have too many dollars chasing too few goods, the answer is to not hand out more dollars.  We need to create more supply not, pay people to not produce.

Roberta Kelly · Answer

trend, everyone selling information, I am not finding relevant concise real estate property opportunities in my fast pace maket area, Houston, TX. Metro counties, Fort Bend, Harris, Colorado, Fayetteville,

Theresa Harris · Answer

Not all markets are the same, so focus on your area.  If you can find a place where the numbers work and you are planning on holding onto it for a while (ie not doing a flip), then buy.  Interest rates are going up.  Prices in some areas have gone up a lot, others the houses sell quickly, but the prices haven't gone up that much (if at all).

Nathan Gesner · Answer

The lack of inventory has increased demand and drive prices up. It's gotten so bad that prices have detached from reality, indicating a correction is inevitable. I haven't ready any expert opinion that we'll see a crash like 2008, but all the experts are pointing towards something coming soon.

In my opinion, it's a bad time to invest unless you find a really sweet deal that cashflows today and that you can hold for 10 years. That gives the market time to correct and recover. This would be a terrible time for a flip, particularly a big-money flip.

The truth is, you can make money in any market. You just have to understand investments and the market well enough to know how to flex with reality.

John Martinez · Answer

I am in the San Antonio area and there are opportunities but not anywhere in my price range really. As I am still learning though I may not be able to recognize the true deals yet, so at this time I am just being patient and learning.

I did recently see in the news though that Houston is an area that just ranked in the top 4 of real estate markets that recorded the most foreclosures in Texas. Are you currently looking for foreclosures?

John Martinez · Answer

So funny you say it that way, I am looking into a market where I feel there is future potential. My strategy there would be buy and hold - 10 years + possibly. I am also looking for my window of opportunity.

John Martinez · Answer

Thank you for your insights, I will be honest. I am not too familiar with how CPI works but I will be looking into it and how it can potentially affect my decision making in the future. I do agree though that we need to start producing something and not hand out money. I see the effects even in my daily job where I cannot find people that want to work, even after raising the pay for the positions available.

I will be utilizing the information you provided to do more research and learn. I will try to narrow my research down to the market I am looking into. This may help put more items I am learning about into perspective.

John Martinez · Answer

Thank you for the reply, after studying a bit and reviewing I was thinking the same. I have not purchased my first real estate investment so I am just taking best guess but in my market it seems people are buying a lot and supply is low. Now with the interest rate hikes I do not see alot of movement and those properties that are left are way outside my price range for my first buy. I did have the thought of flipping for my first investment but I might just keep saving money and see what happens in the coming months. I feel as though if a correction is going to come, it may come by the end of the year possibly?

One thing I am learning for sure is that careful analysis of your market is crucial.

Dwayne Poster · Answer

I live in an oil and gas economy, which is cyclic by nature. Windows of opportunity open and close predictably over the cycles. I’m hoping the slump comes soon so I can enjoy one more buy cycle before my time is done. And yes, a sell window is currently wide open.

How do real estate cycles impact your decision making?

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