Is Real Estate Recession Proof?

Question

When I think recessions I automatically start thinking about plummeting real estate values and how that could hurt me with my existing portfolio or if i'm in the right position it can be a great time for more acquisition. But per the data, for every official recession since 1980 only the last one had any significant impact on real estate. Very interesting article from Redfin.

"In all but the 2007-2009 Great Recession, inflation-adjusted home prices only declined an average of 2.7 percent from the month before the recession began to the final month of the recession"

https://www.redfin.com/blog/ne...

Eric Mayer · Answer

Buy for long term cash flow and the risk becomes minimal. Real estate always goes up over time. People will always need a place to live. Even more so when the banks stop giving out mortgages in a recession.

Tom S. · Answer

@Dan Close  I think in the long run it's a great investment, but even for my buy and hold properties, the 2008 recession was tough.

People do always need a place to live, but I had lots of tenants lose their jobs or have hours cut.  I also have commercial properties, and an art gallery went belly up.  Also am diversified to college rentals, and the credit crisis meant people couldn't get student loans, so were dropping out.

But I did survive the crisis!

- Tom

Taylor L. · Answer

It is not recession proof. Market valuations are one thing, but as investors our business plans can fail due to market forces such as falling rents and rising vacancies due. If we start getting too confident about recession-proofness then I think we're more likely to make overly ambitious (i.e. risky) decisions.

Caleb Heimsoth · Answer

@Dan Close nothing is truly ever “recession”

Proof.  I wish people would stop asking questions like this.  You want a well diversified portfolio and to hold stuff long term and you’ll be fine.

People who sold stock in 2008, probably took a 30-50 percent loss.  The market is up over 300 percent now since then.  Hold long term and you’ll be good to go

Dan Close · Answer

One problem that happened in Louisville, KY during the last recession (and I assume other places as well) was banks calling loans due. The stories I've heard were investors who took houses in class D locations  leveraged them for way more then there were worth and spent the money. When the banks wanted to get in a stronger position they started calling loans due, and even though the property was still cash flowing, not having the cash on hand to get back to the proper LTV caused a lot of them to go under.

I think its much harder to over leverage like this today because even if you wanted to, the banks are not giving these crazy loans anymore.

Scott Kaczmarek · Answer

@Dan Close - no, I don’t think it’s recession proof, but there are things you can do to make it less bumpy.  I’m a buy and hold investor so I make sure I’m not over leveraged and having a solid cash reserve are two things I really focus on in my REI.

Scott Meyers · Answer

For me, components of Real Estate are recession-proof.  For example, Self Storage has been especially good to me and I maintain that is because it "floats."  What do I mean by that?  In the good times, people are buying more "stuff" and inevitably putting things into self storage facilities.  In the bad times, people are downsizing and placing things in self storage.  Of course, you, as the owner, need to understand the financials your facility is operating in, so yes, LTV and equity are critical (just like any RE asset).

Eduardo Zepeda · Answer

@Dan Close Real estate is not an asset class. Thus it cannot be subject to a blanket statement like that. There are dozens of ways to invest inside of real estate and hundreds of markets to do it in. With that said, I strongly believe that certain asset classes in real estate and within certain markets are well insulated from recession while others are highly exposed.

Dan Close · Answer

I dont think the data from the article was flawed, just that its looking at the whole US market for the percentage points.https://www.redfin.com/blog/next-recession-housing-market/It does go on to discuss markets with the highest future risk and several in the top 10 are in CA.

Is Real Estate Recession Proof?

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