What’s your outlook on the market?

Question

I’m looking into buying my first investment property here in Medford Oregon. It’s a bit stressful at the moment with low inventory and high interest rates.
I keep hearing one day that the markets going to crash, rates are only going up and I should wait.
what are your thoughts?

Do you think the bubble is going to pop within the year?

Do you think that now is the time to buy with rates so high?

It’s a lot to take in and with me being so new to the game I’m not really sure what to think.

Nicole Heasley Beitenman · Answer

No and yes.

First, there is likely no bubble to pop. This market is being driven by low supply, not bad loans. We're not creating fake value.

Second, rates aren't high. They're still below the historical average of 7-8%.  Anything over 2% has now been deemed high. Shut out that noise and go find a deal that works with a higher rate.

Lawrence Potts · Answer

Hey Jarrett,

I think a lot of investors have PTSD from 2007-2008. We have to remember WHY it crashed: bad loans. People were given loans that shouldn’t have been and they couldn’t make the payments, secondary markets stopped buying, houses began getting foreclosed on, massive government bail outs, etc.

Those bad loans are not funded anymore. Lenders have very strict lending requirements now compared to prior 2007-2008. Right now we have massive inventory shortages in purchase and rental space. We are severely behind in building new. The Feds pushed down interest rates to historic lows back in 2020-2021 to encourage people to borrow and spend and reinvest the trillions of dollars printed back into the economy to prevent a collapse from the lockdowns. This meant that those who kept their jobs and were making decent money had more buying power. It also meant that marginal buyers could get into the game.

Now interest rates are back to 2016-2018 levels. Prices are very high in high appreciating markets and marginal buyers are no longer able to buy. Because demand (number of buyers) is decreasing, this may force home prices to settle down a bit. But with low supply, it’s hard to say what will happen with prices.

I think a “crash” could happen because of our highly inflated dollar and supply chain issues, fuel prices, etc., but real estate will not be the cause. In fact, real estate is one of the best hedges against inflation.

I don’t focus on interest rates too much. Yes, it can factor into your cashflow. But the average home owner moves after 7 years. People refinance all the time. Chances are in Medford, you’ll see appreciation each year and when you see your equity hit a certain point, you’ll probably cash out refinance and buy more real estate, therefore changing your interest rate anyways. So I don’t focus too much on it here because it doesn’t factor too much into my strategy or my clients’.

With that being said, we are looking at a different situation than 2007-2008. And what we do know is that our dollar today is worth less tomorrow. So buying an appreciating asset is safer than keeping your dollar sitting in the bank and waiting for the home run deal. There are deals out there: you don’t find deals, you make deals happen. That means you may have to find something off market. Make deals on properties that have been listed for +45 days. Look at other markets. I think the best time to buy was yesterday and the second best time to buy is today. People here can see everything we are seeing with low inventory, rising rates, and high demand, and they are still buying. It’s important to see these things but also important to look at our history and see what factors caused crashes and then analyze our market. And then you have to see what fits your strategy.

You can also reverse engineer worst case scenarios too: let’s say you buy a turn key rental and the market crashes. What’s the worst case? You have a rental that may be worth less than when you bought it. But as long as it cash flows, so what? You hold on to it until the market gets back up and then you have equity. Is your market high demand for rentals (the answer is YES)? Then you don’t have to worry too much about vacancies. Just keep a reserve for if you find yourself vacant for 2 months, you can stay afloat. Write out a strategy against the worst case scenario and then determine if that is something you’re willing to take on.

Hope that helps!

Eric Bilderback · Answer

I believe that there is a downturn coming.  The current prices in my area are not sustainable especially with these higher interest rates.  In my area the DOM are increasing and I believe more inventory will be coming on the market soon.  You add that to higher gas prices and more supply constraints I think we are due for a correction.  My guess would be the market will over correct, which could cause a crash.  Free advice is what you pay for it and I have felt that our economy was in bad condition/artificial for quite sometime.  This is the first time however I will be sitting out of this market and will pass on deals I think are solid for at least the next few months.

The fact that gives me the most pause to think I am wrong-

Currency traders are betting Central Banks will have negative interest rates in 18 months or so.  They must believe we will have a significant recession and the Fed will pull rates down to below zero which should make real estate prices sky rocket.

I do believe if someone such as yourself bought I small multifamily with great fixed debt and managed it for the long run you will be just fine.  And you will be very happy you have that property in 10 years.

Arsen Atanasovski · Answer

i think I posted a year ago that the market was going to crash cause of Covid and I replied to that as well! In the world you have these so called dooms dayers you have it in real estate as well these people that think one day it’s all going to crash, and that’s fine it’s another person I don’t have to compete with on my offers. I hear people say I can’t believe what people are paying for these houses……remember when they were X amount in 2008? Love those people! My dad bought his mustang in the 1970’s brand new for $3600, so I’m gonna wait until Ford drops their prices to buy a mustang at that price.

Alexis Riveron · Answer

@Cal Martin make sure the numbers work. That all. Rate hikes will eventually bring prices down. But don’t chase the market. If you are a long term investor just make sure the numbers work. Historically rents don’t go down unless you are in a market we’re people are moving out off.

Cal Martin · Answer

Hey Jarret! Medford, OR is a beautiful place and I'm jealous of you haha. You kind of answered your own question in a way. Low inventory across the country currently is acting as a buffer for the housing market. In the late 2000s crash we were building more homes than we had buyers for, creating a situation where the supply far outweighed the demand, but for that "slack" period people were still buying houses at their previous values, even though the market didn't justify that price. In addition, that crash was led on by lending practices that are highly illegal now both on the primary and secondary markets.

If I were you, I would just apply the same principles to real estate investing that you would in any market:

1) Only buy if the numbers make sense! As buy and hold investors it doesn't matter what the market does while we own the house. As long as rents stay relatively the same/increase and we bought at a fixed rate then it doesn't matter what the market does while we own.

2) If you're a flipper, give yourself some insurance by having multiple exit paths. Make sure the numbers work as a rental, just case of the small chance that the market does crash, because if it does, people still need a place with a roof over their head.

3) Save Reserves! The main variable in this equation is that you manage your property correctly which means keeping money for reserves for vacancy, cap ex, repairs, etc. If not it could put you in a financial position where you are forced to sell.

Also, if the right deal comes up, Medford seems like it would be a great STR market in the couple times I've been there.

You got this Jarret!