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3 Important Points to Remember When Considering a Potential Real Estate Crash

Matt Faircloth
2 min read
3 Important Points to Remember When Considering a Potential Real Estate Crash

There is a lot of chatter out there about a potential real estate market “crash”—what it will look like, when it will happen, and what we should do to prepare. No one has a crystal ball, so it’s all speculation of course. We really don’t know what’s going to happen, as much as we’d like to.

It’s a good conversation to have though, mostly for entertainment but partly so that we can take action to prepare for the future. I have done research on the topic and talked to many other investors and even an economist on the matter. Be sure to watch the video accompanied with this article for a full discussion, but let’s have a brief one here.

3 Important Points to Remember When Considering a Potential Real Estate Crash

Some people think or hope the market is going to crash—but for the wrong reasons.

I have heard several conversations about a pending crash, and most who think we should get ready for a big dip will tell you it’s because we are “due” for one. The market took a huge hit in 2007, but the real estate market historically doesn’t crash every 10 years.

Related: Why Real Estate Beats Stocks During a Recession

The stock market, on the other hand, that’s a different story. Investors should always consider how the stock market could affect their real estate business. Your local area may not be affected by Wall Street, but it would pay to think about what would happen in your area if the Dow Jones went from 26,000 to 10,000.

Related: 4 Actionable Ways to Find Real Estate Deals, Even in a Red Hot Market

Each real estate market is different.

Just because the market in Denver is booming doesn’t mean that the market in New York is doing the same. They are not related, for the most part. And what dragged the whole house of cards down in 2007 was the finance market, which backs real estate loans.

I do not believe that we are looking at the same conditions that created 2007 in the financial sector, so we shouldn’t look for a nationwide real estate crash. Plus, the commercial market, including retail and multifamily, are completely different animals than single-family homes. Some sectors of the commercial market may struggle in the coming weeks and years—values could fall. Meanwhile, a lack of inventory is driving up prices of residential homes currently. Deals can be scarce.

Luxury housing is overbuilt, but middle-market real estate has room to grow.

I have seen this trend specifically in high-end redeveloping urban areas. There are new apartment buildings and condos going up everywhere, all with stainless steel appliances, granite, and lots of amenities. It seems to me that there is a glut of these developments in my markets. I’m in Philadelphia, New Jersey, and NYC, so your areas may be different. (I’m curious to hear what you are seeing in your areas in the comments section below!)

That being said, I also see that middle-priced homes that are affordable to most people in any given area are not overbuilt. If anything, there is not enough of them because too many rehabbers and developers are going for the high-priced, top-of-the-market builds. That goes for home sales and rentals also.

I get into a much longer conversation in the video and hope for an even longer one with you in the comment section on this. Remember, it’s all opinions at this point; no one is right or wrong. But if we can get a discussion going backed by real data, we can help prepare each other for what’s around the corner.

Have a great and profitable week!

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.