With so many people wondering what the real estate market is going to do next, every day I’m asked whether the market is going to crash, when it’s going to crash, and what to do when it crashes. I get why the market has so many people speculating. If you’re a newer real estate investor, you’ve only seen home values rise consistently since they bottomed out in 2011. After the 2008 crash, many investors have only experienced steady growth for about a decade.
That steady growth turned into unprecedented growth in 2021. In the buying frenzy we’ve just experienced, homeowners could come up with a pie in the sky figure for a modest home in a newly hot market and still receive multiple offers. Of course, those price jumps were never going to last, and I’m starting to see that some investors are convinced that the sky is falling. While I don’t support alarmism, it is clear that we’ve entered a new period in the housing market. According to Moody Analytics, there are 210 real estate markets in the US that are at risk of a 15 to 20 percent drop in value.
If you’re planning a house flip, that drop in value is certainly unwelcome news. House flipping is inherently risky, which is why I’m not a fan of it. The greatest risk factor is that you need to time your sale correctly, and with supply chain issues and contractors juggling multiple projects, one would need a crystal ball to say with any confidence when a flip is going to be ready.
Markets are Individual
If you’re not planning on flipping your investment property but rather rent it out to tenants, what the real estate market does in the coming year is a little less important to you. Instead, you’re probably more concerned with whether it’s better to buy now or hold off.
As far as whether it’s right for you to wait for prices to drop, there’s no one answer to what home prices will do across the country. Each housing market has its own trajectory. But if you’re bracing yourself for a crash like the one in 2008, you may be waiting in vain. While declines in home values are probably on the horizon, a repeat of that crash is unlikely. The inventory of available homes is too limited for there to be a huge drop. Right now, the percent of homes for sale is as low as it’s ever been.
If your plan is to rent your property, the best approach is to focus on the same fundamentals that you would during a hot housing market. Find a property in an area with a high demand for rentals, and run the numbers on your income versus expenses to see if this is a good investment. It’s important to note that when buying a house is out of reach for so many, the demand for rentals increases. Currently, the vacancy rate for homes to rent is close to the lowest it’s ever been. While the market may feel uncertain, the fact remains that with demand for rentals so high, it’s still a good time to invest.