Real Estate News & Commentary

Some Say the Housing Market Is Poised to Fall Off a Cliff—Here’s How Investors Should Proceed

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Rock crashing down from cliff

Never before have I seen such a weird real estate market nor such a weird recession. The BiggerPockets Forums are buzzing with debate about whether the bottom will fall out of the real estate market and if so, when.

Is another 2008-like financial crisis and real estate collapse coming? Alternatively, will the market even cool off? Or will real estate prices continue to rise through this recession like they did in the dot-com recession of 2001?

While it’s impossible to say for sure where things are going, we can make a few realistic predictions and act in accordance to the volatile and unpredictable market we currently find ourselves in.

The Economic Outlook for Real Estate Investors

The economy itself, as you have probably noticed, is not doing particularly well. Yes, it has improved recently, but it’s still in bad shape.

Related: Real Estate News Roundup: Demand Outpaces New Construction; Market to Remain Strong Through 2021; Affordability Improving Nationally

Here are a few key statistics:

  • Unemployment peaked at 14.7% in April and remained at a very high level of 8.4% in August.
  • Many states have eviction moratoriums in place.
  • Delinquency is up and some studies predict a major spike in evictions by the end of the year.
  • The government has spent about twice as much as it has brought in this year so far.
  • Most of the $2 trillion CARES bill has been spent. The $600/week unemployment insurance ran out, and the $300/week will run out soon if not extended.

Yet the real estate market is quite strong:

  • Existing home sales increased 24.7% between May and July.
  • There are only 3.1 months of inventory (a balanced market is six months of inventory).
  • Real estate prices are up over 4% from the beginning of the year.

And despite its biggest decline in history and a deep recession, the stock market is at an all-time high.

While it’s true that the Fed has added an unprecedented amount of money to the economy, can we really expect the real estate market to stay as strong as it has been? Yes, it probably won’t collapse like it did in 2008. But it is, at the minimum, quite likely that the market will at least cool off and likely decline in the near future.

How Real Estate Investors Should Approach the Current Market

So, how should real estate investors approach this market? Well, I would answer the same way that Cold War negotiator James Donovan did to the question, “How do porcupines make love?”

Answer: “Very carefully.”

Related: What Every Investor Should Understand About Inflation

Or listen to BiggerPockets’ own Ben Leybovich, who put it in a more real estate-specific way, “I’ve been at [real estate]since 2006. This market right now is for professionals more so than I’ve ever seen before.”

I would agree completely, as noted in the above video:

“Be more cautious… It’s OK not to find anything. It’s OK to shoot out offers and get nothing for the time being. And if you are a new investor, definitely be careful. This is not the time to overextend yourself or reach on anything.”

My brother and partner Phillip Syrios disagrees ever-so-slightly, contending the most important thing right now is to stick to your straetegy and only do value investing:

“Don’t try to predict the future. Don’t overextend yourself. Buy something that you can you make money from consistently because of the strategy you’re using. And if it goes up or goes down, your strategy is built to take that on.”

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In other words, you can’t really predict the market, so use a strategy that can weather any storm.

Still, while we can’t predict where the market will go, we know that the market is very weird and volatile right now. So caution is definitely advised.

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What’s your take on the future of the market?

Join the discussion below.

Andrew Syrios has been investing in real estate for over a decade and is a partner with Stewardship Investments, LLC along with his brother Phillip ...
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    Bradley Cladianos Contractor from Copenhagen, Denmark
    Replied 19 days ago
    As long as you find a property that cash flows a good amount that can handle a slight drop in rent you should be ok. I am a new investor but given the uncertainty I wouldn't be looking to flip only to buy and hold.
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 18 days ago
    I would agree with a caveat. Flippers should be even more careful right now, but you should still be cautious with buy and hold. It's not just a possible dip in rents, it's a large increase in delinquency that could put you at risk. Most investors can handle a reduction in income by 5-10%. But 100%, that's a different matter.
    Ed Young from New York, New York
    Replied 19 days ago
    I would agree. Also the impact of the down turn may vary based on the region, job availability, population growth, and other factors.
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 12 days ago
    Definitely. Urban areas, particularly New York, San Fran and LA (given from the number of people moving out) could get hammered
    Jonathan Selenkow
    Replied 19 days ago
    Hi All, I can't explain how relevant this is to me. I'd fall in to the "new investor" category. I've intrinsically felt the same sentiment as the authors, and have been stock piling cash over the last several years. Does the advice to not be "desperate" apply to late-comers who have never made a single deal? Even with the growing uncertainty, I feel just as much urgency to start doing *something* (I'm 32 years old and have been renting in Los Angeles my whole life...). I have not actively looked in some time, but I'm pretty sure there are zero deals to be had in around here. Does anyone else agree that now is not the time for a newbie to make significant moves? Or will I join the growing pool of people waiting for the dip, and waste another 5 years of my life not investing in real estate?
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 17 days ago
    I would say that advice is the most pertinent to "late comers" or anyone feeling "desperate" to jump into the market without much experience. It's not to say you shouldn't buy no matter what. Some analysts think there won't be a correction and the market will just keep going up (although they're in a minority and predictions are to be taken with a biiiiigggg grain of salt). But the market is very weird, erratic and uncertain right now. There is a good chance of a substantial correciton or at least a cool off. So only buy if you are confident it's a really, really good deal. Continuing to save and learn is not the end of the world by any means.
    Andrew Dayao
    Replied 18 days ago
    i agree. I am in a similar situation. Perhaps the rest of the country hasbhad better luck negotiating cash flow property deals, but i personally haven't seen any sfh-4plexes in the sf Bay area or La that are even worth touching from a cash flow perspective right now (comm properties don't count , as most of them are difficult to obtain/justifywithout substantial cash/experience)
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 16 days ago
    Yeah, LA and San Fran are just ridiculous price wise, even though it seems like people are leaving in droves from them.
    Gareth Fisher from Manheim, Pennsylvania
    Replied 18 days ago
    The economy is in much better shape then the numbers are telling. Its takes more then a corona virus to bring down America. My friends, myself and most of out local business cannot find any good help. I will place an ad and only get a handful of applicants. 8% of the population is content on sitting on the couch and getting stoned. It really is that simple. The Fed is going to ramp up inflation. The cost of living will continue to increase. Real estate will continue to be one of the most stable assets to own. Running a good balance sheet and owning quality assets is all anyone can do.
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 15 days ago
    I don't know about that, unemployment is still high and the debt is exploding. Many of those who are on unemployment now were working just 9 months ago. The real estate market is on fire, and so related industries are doing well. But the economy on the whole is still quite fragile IMO.
    Matthew T. Investor from Springfield, MA
    Replied 13 days ago
    I agree with you Andrew . The overall economy is being temporarily propted up and it is only a matter of time. This is musical chairs and the music will stop eventually.
    Emmett Harris Rental Property Investor from Manchester, NH
    Replied 18 days ago
    The Fed has applied an air compressor to the economic balloon they had already created. It's a desperation move that attempts to quell the result of their past inflationary policies by doubling down with even more of the same. Expanding the money supply does nothing to increase the underlying amount of resources and productivity in the economy. Instead, it dilutes the value of dollars (inflation/higher prices) and distorts time-value investment decisions. Real estate is not immune to these perverse effects. Eventually, the distortions caused by the Fed can no longer be sustained and the balloon pops. It's difficult to precisely predict when this will occur or which sectors will suffer the worst consequences, but the reckoning is approaching and investors should carry enough reserves to weather a downward shock of 6 to 12 months.
    Warren Trout
    Replied 18 days ago
    Outside the travel and hospitality industries, the economy is great. Try getting a plumber for that rental. Try finding a dentist or getting your car worked on! Maybe where your at you can buy and cash flow realestate, but what I'm seeing is 50% down or more to break even at best. I've seen properties that won't cash flow owing them free and clear
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 8 days ago
    Unemployment is still very high, the debt and deficit are through the roof, household debt is also very high and various eviction moratoriums are causing havoc. Here in KC, it's very hard to find something that cash flows, albeit not impossible. On the coasts, I suspect it's basically impossible. But overall, the economy is very fragile and volatile right now. I would proceed with a good dose of caution.