Current Market. Recession?

3 Replies

Hey Adi,

Every market is different. Historically, recessions are not tied to the housing market. What happened in 2008 was different because of the mortgage crisis.

This article better explains it: https://www.keepingcurrentmatters.com/2019/03/07/why-an-economic-slowdown-will-not-crush-real-estate-this-time/

This quote sums it up:

"During the last recession, prices fell dramatically because the housing collapse caused the recession. However, if we look at the previous four recessions, we can see that home values weren’t negatively impacted:

  • January 1980 to July 1980: Home values rose 4.5%
  • July 1981 to November 1982: Home values rose 1.9%
  • July 1990 to March 1991: Home values fell less than 1%
  • March 2001 to November 2001: Home values rose 4.8%"

Hope this helps!

Best,

Rick

@Sean Larsen , that's a tough one, as it varies on the area.  Here is what I look at (for Los Angeles):

  • Rents versus Cost of Ownership: For example, condos used to be a great deal.  Now, if it is for owner user, it's fine, but as a rental, the numbers don't work.  For single family homes, it's about break even depending on how much you put down.
  • Cost of construction and building demand: This is a big one, it's too difficult and expensive to build in LA.  Therefore, only luxury properties are being built (cutting out a major segment of the buyers out there).  If costs were lower and there was land to build, then that might be a different story (because of supply vs. demand).
  • Look at jobs/unemployment numbers:  Major companies are coming in and expanding (such as Google, Netflix, etc.).  This not only increases housing demand, but these are higher paying jobs, which is better for those who already have properties.  I have a client who is renting their Accessory Dwelling Unit (a 350 square foot detached studio) for $2,150/month!  If people are working, then consumer spending and confidence goes up, and that applies to housing.

To be honest, I would just look at how long you plan on owning the property.  I sold a tear down for almost $1,500,000 and they bought it 20 years ago for about $500,000.  They owned the home through the recessions and clearly did fine.  If you are looking to buy as a rental, if the numbers work, then it works.  Don't take unnecessary risks.

Hope this helps!