What factors contribute to real estate dips or crashes?

Question

It seems like the conversation always starts with... Will the real estate market crash in 2020? Or, will it crash in the Bay Area? Or will housing prices dip in California? I would like to pose the question from a different angle: What are the numerous factors that can lead to an overall decline in real estate market? I think this could help people gauge the factors that precede a dip and how many of those boxes are checked at any given point in time.

Please name as many as you can. For example, we know that interest rates are one, what are some others?

Also, I would like to pull the knowledge from long-term investors who have memory of previous declines in real estate that were as marked or less marked than 2008, so we don't just rehash the most memorable real estate dip in recent history.

Thanks in advance.

Marc Winter · Answer

Federal legislative policy (meddling) with a free market and the Federal Reserve Bank (which isn't Federal nor a real 'bank') with their interest rate manipulations are the two biggest factors affecting housing.

The Fed cannot decrease interest rates any time soon to further stimulate the virus-stricken economy, (unless we go to negative interest) so their only weapon left is creating money out of thin air.

That course will effectively monetize the national debt and further drive investors into real assets. Expect further rising prices in real estate, stocks, and other items of real value, because the US $ will buy less and less.

Just remember (and be prepared): kicking a can down a road works... until you run out of road.

Hold on tight--it's gonna get bumpy.

Jack Seiden · Answer

over supply, in the mid 00's we actually had too many houses for the population now we have the exact opposite a housing shortage that is unlikey to end anytime soon. its pretty simple economics everyone wants a roof over thier head and most people only want to own a single property (yes investors often own multiple but they are still renting to the population at large not affecting aggregate supply). so unless there is major housing supply increase which given that most major metros are out of land to build is extermely unlikely the housing market should continue to be very strong.

Russell Brazil · Answer

Well real estate prices have only "crashed" twice since the beginning of the 20th century. The Great Depression and the Financial Crisis.

Each had many factors, but a drastic shrinking of available credit was a big factor in both.

Chris Gawlik · Answer

banks are starting to tighten up quite a bit. The banks are going to be very careful who they lend to in the coming months. Underwriting is a pain in the butt for buyers. Its happening right now. I think this is going to get worse in the coming months just my opinion. With the unemployment and low consumer confidence, credit scores are going to take a hit. I don't think this low inventory issue is going to last. I think your going to start seeing more and more inventory especially during the slower buying season coming. All of this combined will start to cause a selling panic in the market and prices will start to correct. There is also a mass exodus from cities ATM. Its happening all over the country. So the market is hot in the suburbs right now, but Covid has caused many people who were going to list there property put the sale on hold, but they still plan on selling soon. This combination of things working all at once is going to cause a storm. Just my opinion again, but be prepared for a big correction in the next year or so.

Aigo Pyles · Answer

1. Economic growth (unemployment). Fewer people will be able to afford house when the rate of unemployment is rising.2. Mortgage availability

3. Supply of houses

4. Demand

5. Interest rate. High interest rate brings less buyers.

David Czech · Answer

The only issue with the financial crisis was that it was triggered by something fundamentally wrong within our financial system: Toxic mortgages. Now with more regulation there is less risk of that happening.

Personally, I'm expecting the mass exodus from major cities to drive prices up in general, especially in suburbs.

Suzanne Player · Answer

All markets don’t automatically sync together - some areas may be growing at the same time as others are decreasing in value. Job growth, population growth, & availability of new construction are definitely factors that vary from place to place, along with the presence of investor friendly regulations.

If an investor isn’t limited to a particular geographic area, there are probably opportunities to make money continuously.

What factors contribute to real estate dips or crashes?

What factors contribute to real estate dips or crashes?

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