We are getting this question often in the past year – should I continue to buy real estate? Or should I wait for the recession?
It is not a secret that everyone is talking about the next recession. When will it come? How bad will it be? No one knows…
Are we heading towards one? Most probably. Statistically, we are closer to it than far.
I am not pretending to be a prophet and I don’t think that even the greatest economists know when will it hit us. We all know that over 10 years past since the last recession and the stock markets are reaching new heights all the time. Based on history, we are due for another recession which will also cause a correction in the real estate markets.
What we do know is that the current situation is very different than what we had in the last cycle in 2008. Back then, the sub-prime crisis was the trigger for the recession which caused the real estate markets to crash dramatically (in most markets in the US).
The current situation is different – the banks (and other lenders) have learned from the last round and they are more conservatives with their lending policy. You can’t leverage today as you could have 12 years ago. According to my analysis (and again, I am no expert or pretend to be one), the next crisis will not be triggered by the real estate markets. It is more likely, that the next recession will be triggered by the commerce “war” between the US and China, or by another war.
My interpretation is that the real estate markets will not take the same hit as they took in 2008. We will still see a drop in property value. We will still see drop in rents and higher vacancy rates (for the initial part of the cycle), but I don’t think we will see too many properties that will lose 75% of their value.
So what is the answer? I would continue to buy real estate, but with caution. There are few steps any real estate investor can take in order to mitigate the risk of being caught by the next recession.
On those steps and more, I will write in the next blog.
Until then, invest wisely!!