How to handle a Real Estate Collapse

by | BiggerPockets.com

I was thinking to myself . . . what do I need to do to prepare for any sort of real estate bubble collapse? While it is a simple question, I think the ramifications are huge. It is more then likely that interest rates will be much higher then they are today. All those people with ARMs will be crying to their banks in an attempt to avoid foreclosure. People will stop taking equity out of their homes to finance spending. The economy as a whole will start to falter. Will we get propped up by foreign investors?? Will the chinese take pride in their newfound ownership of American property?

I fear this. What will cause it?? No one really knows. There are certainly positives:

Those of us who remember the premise of a 30 year mortgage – slow and steady, but quite safe, will have no worries. The average American might be able to buy a studio condo in LA/NY again – I’m not going to stretch it and say house or, mind you, a 1 bedroom. The stock market will probably begin to push upwards! With the real estate market in trouble, the stock market will again begin to look like a place for opportunity.

I guess there are many ways things can go, but be warned. Time to start diversifying your portfolio a bit. Look at cash, stocks, bonds. Real estate is a great investment, but should never be your only one.

Just a thought……….

About Author

Joshua Dorkin

Joshua Dorkin is a serial entrepreneur, investor, podcaster, publisher, educator, and co-author of How to Invest in Real Estate. He started BiggerPockets to help democratize the real estate investing landscape for himself and others, aiming to make it accessible for everyone, regardless of income or education. Today, BiggerPockets is the premier real estate investing website online with over one million members and reaching over 70 million people with the message of financial freedom through real estate investing. Joshua, along with his wife and three daughters, make their home in Denver, Colorado, and spend any time they can traveling, exploring, and adventuring. Read more about Joshua’s story in 5280 and Inc.com.

3 Comments

  1. I am a loan officer and a real estate investor. I do not really understand how a 30yr fixed mortgage is going to help you? How long have people been saying there is going to be this bubble. I remeber hearing this 2-3 years ago. So are you saying that a bubble burst is going to last more than 10 years? Historically have you seen this happen?
    How high do you expect interest rates to rise? Also do you think if they did rise high that the market could take that kind of hit, especially with where prices are? I really doubt it, we would possibly be thrown into another recession. Then rates would fall again. So maybe you should re-think your thoughts on this.
    I highly doubt the market could handle rises longer in short term rates for any longer than until the end of the year.
    People who usually always want 30yr fixed do not understand mortgages and the products out there.
    Good Luck with your blog.

  2. People who usually always want 30yr fixed do not understand mortgages and the products out there.

    Ok mr. loan officer, you play the, “gee the market is just great and people dont understand mortgages game”

    Let me say this a 30 year mortgage is piece of mind if you plan on staying in the home for a long period of time (even short for that matter these days).
    How can you (mr loan officer) justify an IO, or an AM as a sence of stability?

    These fancy mortgages are going to adjust and amortarize over the next year or so and every 6th month there after.

    if sally and joe are paying $2200 large on their teaser rate 1.75 no money down no income verification, and it adjust’s to what ever the rate is at that period, and now sally and joe have to pay $2800+-, minus taxes and insurance.

    Umm! please enlighten me where you think this is creative financing and stability in such a program. Ill take the 30 year and if i decided to sell at least i know at that time i can not only afford to stay in the home if it dont sell, I know my rate is what it is for a long time.

    Oh and I can throw a dart in the bullseye that sally and joes house is upsidedown on the equity so a refinance is out of the question, sorry about that! unless you have $20,000 laying around then we can talk. Other than that sorry.

    So yes mr Loan officer you are right people just dont know mortgages, and those are the ones who will be standing at your door saying
    “you told me i was going to appreciate 8% a year what happen” i owe $500,000 but the appraisal came in at $400,000.

    Umm! do i know you…exactly!

  3. brokersleaveyoubroke on

    People who usually always want 30yr fixed do not understand mortgages and the products out there.

    Sorry mr. loan officer, they ARE the ones who understand the products out there. Only people who don’t understand will get sucked into one of your dangerous products that allows them to buy a house they can’t afford. When there are millions of people in foreclosure I hope the gevernment goes after the people that profited from selling them dangerous mortgages.

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