Why are people talking about a crash?

8 Replies

I see several posts where folks are :

1) Trying to predict the crash using causality of metrics like lower unemployment and low interest rates

2) Trying to preserve cash for the next crash, so they can buy

I want to hone in on #2. What makes people feel there will be a CRASH? To my knowledge the first crash was in the 1930's and the next one was not until 2007. Why do people think there will be another one soon and now. I can completely understand a discussion about a slowdown or a dip but a crash?

Also how prudent is it for people to 'save funds' for a cash, so they can buy more properties!!. Is'nt a crash just a disaster where a lot of things go down including your own employment, savings, higher and rising vacancy rates, rapidly falling rents. How does saving cash now make sense to buy in a crash?

The world is always trying to predict market cycles.

The reason people are prediction a market correction is because the short term debt cycle is 7-10 years. We are at the end of this timeline and should expect the market to act accordingly. There are lots of indicators to go along with it that corroborate this expectation.

You say crash, slowdown, and dip as if they all have universally known meanings. They may all be different words to you, but it's important to clarify what exactly you mean by "crash". The same problem applies to people who make doomsday threads. it's important to clarify the economic repercussions you are speaking of, "crash" can mean something different to everyone.  

cash is valuable during the downward cycle because there will be opportunity to buy undervalued assets. Here again though you make it sound like a crash affects everyone in totality, equally, and brutally, but this isn't the case.

@Sam Josh   Actually as it relates to the SF bay area the worse crash since the depression was NOT 08 it was 89 to 1991.

you had 50% devaluation of real estate in many parts of the bay area SF included.. in 08 you only had 10 to 20% price roll back in SF and peninsula..

Crash? Who knows, Correction? Maybe

@Sam Josh

It's purely psychological.

There are always people in a down market afraid they'll buy and the market will continue down.

In an up market, they think the down turn is right around the corner.

No money will ever be made sitting on the side lines.

If buying across a portfolio over 30 years, yes, there will be swings. A diverse portfolio will weather normal market cycles because those properties will be generating cash and building equity.

Recency bias coupled with the PTSD from the once in a lifetime crash, and people like to think they are Nostradamus

@Sam Josh

There were many crashes before 1930 (even in the US there were a bunch in the mid to late 1800s) and there were a few between 1930 and 2007. 

 But that is all beside the point, people like to throw out predictions for many different reasons. And certainly there are some indicators that say there could be another recession on the horizon soon.  Make no mistake, there will be a recession or depression at some point, but that does not mean it is in the next year or even the next decade.  

So for your deal, take a good hard look at it.  Are you hoping for appreciation?  Are you trying to do a quick flip and hoping for a buyer in 4 months to pay 80K more than what you paid, what repairs/upgrades would get you there? 

Some investors (including many successful ones) are selling off some of their properties.  I think this is a great strategy especially if you own a large portfolio.  I know someone who has over 1500 units who has sold 3-4 buildings in the last year.  He sold them because he is getting a great deal and though he still has plenty of other properties, there is no reason not to cash into a "sellers market" keep in mind he as also bought a property or two when the deal is a good one.  Who knows the market may continue to rise for years and then he will have "missed out" on all that appreciation, but that is not the point.  

Think of it like trading stocks.  If you buy at $5/share and the price goes up to $10, there is a popular strategy that says you should sell about half (aka pull your initial investment out) that way if the stock continues to rise you still have money in the stock, but if it drops, you are no worse off than you were when you started. 

It all gets back to the same questions.  What is your risk threshold, what are your goals and how will different outcomes change or effect those goals.  If you have 2 single family rentals your strategy will be different than if you own 50 Multifamily buildings.  

There is definatly an "adjustment" coming. 

Interest rates will be climbing back to historic levels and this in itself will push down the value of real estate.

Oh look, another thread about a real estate crash.

@Sam Josh

After the crash, everyone is a naysayer and wants to scream doom and gloom.

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