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!
