Will the Real Estate Market Crash Due to COVID-19?

Do you remember the Roadrunner and Wile E. Coyote cartoons? Roadrunner would somehow get Wile E. Coyote to run off a cliff, and he’d be stuck in the middle of the air. He wouldn’t even notice until he looked down—and then all of a sudden he would drop, right? It’s a very common kind of joke in cartoons.

I kind of think that’s where we are: We just ran off a cliff.

And if no ground appears on the other side, if we don’t land on another cliff, we’re going to be in for a tough time. I think we are going to land on another cliff and not even notice that we went over it.

If the virus comes and there’s a second round of everything—they shut everyone down again and this time for longer—yes, there’s a lot of bad things that could happen. But I think that we’re coming out on the other side. We’re going to land on that other cliff and be like, “Whoa! Did you see what we just went through? Did you see what we just did?”

And things will just get mostly back to normal.

Will the Real Estate Market Crash Soon?

Now, is there going to be an effect? Of course. We’re probably going to see prices drop maybe a little bit—that would be my guess. I think rents aren’t going to grow as strong as they were. I don’t think the prices of houses are going to grow as much.

But I don’t think we’re going to see a crash unless, again, that cliff doesn’t come up.

A lot of this goes back to how long this lasts, how long that space is before we hit the other cliff, you know, so we can be OK. And if we freefall, this theory goes out the window.

My thinking is this: Last time the recession was caused by real estate. Everybody knew it was caused by real estate and shady practices. Real estate fundamentally is still pretty strong. It’s still pretty good.

Recessions are built on fear, largely. And depressions, those are built on fear, too. And they’re how people feel about the economy more than actually any fundamentals. So right now, there’s a lot of fear. And that’s causing a lot of uncertainty and a lot of crazy times.

I don’t think real estate’s going to be affected that much. I think that some people are going to obviously be out. They’re going to go bankrupt, they’re going to lose money—especially those in vacation rentals.

People who own vacation rentals in Maui, where their payment is $18,000 a month and they’ve been making $25,000 a month for the past 10 years on vacation rentals, they’re probably in trouble. If all of a sudden they have zero rental income and they’ve got to pay $18,000 a month on a mortgage payment to have a beachfront property, yeah. Those people are going to struggle right now.

It just sucks. It’s horrible. They got a bad roll of the dice. If they have to sell, for other investors, now would be a pretty decent time to start picking up those properties.

But that’s my guesstimate. I’d say I’m 85% confident that six months from now this is going to be an interesting memory. I don’t say good or bad—but an interesting memory of this time.

Do you think we’re heading for another cliff or falling into a ravine?

Share your thoughts in the comments.

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