The real estate market has to recover eventually, doesn’t it? Maybe, maybe not. Blasphemy you say? It really depends on what your definition of “eventually” is. You would be hard pressed to find someone who doesn’t know that there was a stock market crash in 1929. That crash was one of the precursors to the Great Depression of the 1930s. But how many people would know that the stock market’s 1929 peak wouldn’t be reached again for almost 30 years? If you adjusted the peak for inflation that peak wasn’t reached again until the mid-1960s. That’s a pretty long “eventually.”
There are many that feel that the housing market crash may lead to our next great depression. Certainly the politicians are scrambling to find a way to prevent that from happening. They are throwing everything at it that they can think of in the hope that something works. But surely we can’t compare the stock market crash to the housing collapse, can we? It is different isn’t it? Sure it’s different, but in many ways it’s very much the same.
The Same, But Different
- An overheated market where prices were bid up to irrational levels.
- Excessive use of leverage in the form of easy credit.
- Misguided Federal Reserve monetary policy
- A banking structure lacking oversight.
- Amateur investors lured into the market with the vision of easy money.
Stock market crash or real estate market collapse? Both, and a devastated economy followed.
The Case For No Recovery
Everyone wants to believe in a recovery. After all, people need to live somewhere and they will buy when renting is perceived as being more expensive that owning. Or will they? Maybe not. After the 1929 stock market crash many investors who were burned by the collapse never returned. What they did, however, was talk about how dangerous it was to invest in that manner and the scars were passed on to the younger generation. That younger generation didn’t touch the stock market either. That’s why it took three decades for stocks to reach their previous high point.
How many people who lost homes to foreclosure are going to be eager to buy a house again? Many real estate investors lost a tremendous amount of money and dignity in the process and will look for safer ways to invest. It doesn’t matter how easy borrowing becomes if people don’t want the money. What many of the former investors will do is talk about how risky real estate investing is. Will they pass this fear on to the next generation?
The Future of Real Estate Investing
Everyone has a theory of what the future of real estate will bring. For most people that theory is simply what they want to believe or what they hope will happen. As far as I’m concerned, investing for appreciation is a fool’s game. If prices rise, fantastic, but I’m not going to base investment decisions on something that may or may not happen. I will invest in real estate because I am able to get it significantly under current market value and/or it will provide good cash flow as a rental. For those who wish to speculate on appreciation I say good luck with that.
If Stupidity got us into this mess, then why can’t it get us out? – Will Rogers