Housing Crash? This Too Shall Pass

[Doug Smith]

Not sure who needs to hear this, but everyone needs to cool their jets regarding a housing market crash and rental properties. In my 35 years I’ve seen this movie before…and the sequels. Let’s take a peek at a Federal Reserve Chart of Historical Housing Prices and focus on the largest housing market correction of our lifetime. If you own rental properties, you need to ask yourself “am I really losing money if prices drop”. From the peak to the trough of the last “crash”, prices dropped 19%. You have 2 options when that happens…panic and sell at a loss, or sit back, collect your rent checks, maintain your property and, in the future, sell if you need to. The “value” of your house only matters when you are borrowing, when you sell, or when you pay taxes. Otherwise, chill out and cash your checks. This too shall pass.

[Dan H.]

Quote from @Doug Smith:

Not sure who needs to hear this, but everyone needs to cool their jets regarding a housing market crash and rental properties. In my 35 years I’ve seen this movie before…and the sequels. Let’s take a peek at a Federal Reserve Chart of Historical Housing Prices and focus on the largest housing market correction of our lifetime. If you own rental properties, you need to ask yourself “am I really losing money if prices drop”. From the peak to the trough of the last “crash”, prices dropped 19%. You have 2 options when that happens…panic and sell at a loss, or sit back, collect your rent checks, maintain your property and, in the future, sell if you need to. The “value” of your house only matters when you are borrowing, when you sell, or when you pay taxes. Otherwise, chill out and cash your checks. This too shall pass.

I do not believe a GFC scenario is imminent but a couple items:

- 9.5 years is a long time to be negative.  This is a national average.   Look at the data for Detroit.  I suspect Detroit took over 15 years to hit their pre GFC high.
- 19% is nationally.  I believe my market had ~40% decline. 
- at the GFC, some markets had large rent declines either due to falling rents or increased vacancy.   Las Vegas, Detroit, much of Arizona.  It can be tough to hold if your incoming revenue suffers a large decline.

My market had ~40% decline in value but fortunately the rents had no significant decline and we were not over leveraged.   We could and did hold until the prices recovered.  In addition we added to our inventory when the prices were reduced.   Unfortunately this was not possible in every market.

Let’s hope GFC is a once a lifetime event and that any decline in valuation will be small in comparison.

best wishes