Will the Real Estate Market Crash After the Pandemic?
It is no doubt that the stock market has been going down since the beginning of the year or should I say the stock market bubble just burst, as a lot of companies are seeing their stock prices going down as low as 70% and can’t do anything about it due to the current pandemic and the fact that all business activities are on a pause. Stock investors are feeling the current trend of the economy as it always goes up and down and are looking for ways to get their feet strong. They hope to invest for the next boom after this burst.
As much as this investment options are going down and tanking really hard, one of the scary part of it is the real estate investment. People are scared of a repeat of the 2008 recession when the real estate sector saw a downside after the crash, as real estate stocks also crashed.
Real estate is buying a property not to live in it but to rent it out or sell it make money. Real estate, is a passive source of cash flow investment which has held its credibility for a very long time. Most real-estate owners do not even get themselves involved in the real-estate hassle, rather they just get a property and hand it over to a real estate agent and manager who will handle the day to day operation and the owner just gets their cash. One major reason a lot of people prefer to invest in real estate is because it is an investment that can be felt, seen, touched and controlled by the owner unlike stocks
What has history taught us about real estate curve?
It is no lie that history tends to repeat itself all the time. Although we haven’t experienced a pandemic that led to a total shutdown of everything but we have seen and experienced recessions as well as real estate crashes. In 2008, there was a meltdown and recession caused by the real estate. The real estate sector was the most favorite place for banks to in the early 2000s as they were willing to give mortgage loans to real estate.
In fact banks were willing to give NINJA loans to people without jobs or income just to invest in real estate because it was believed that real estates never goes down in value but as things went, banks started selling CDOs to other banks because everyone thought real estate could never go down in value but sooner than later people could not pay for their mortgage as well as well as unpaid CDOs from banks which lead to a problem in the banking sector.
In 2008, there was a crash in the market after which there was a recovery in 2009 but the real estate market started to crash in 2009 and recovered in 2012.
What could cause another real estate crash?
Like we know that the real estate industry is a visible one which is affected by physical and economic factors, there is a possibility that there will be another crash in the real estate market. This is because a few things causes this happen which are already happening or are likely to happen in this year.
Job Loss
Within March and April, a lot of people have lost their jobs and this means difficulties in paying rents. If this recession continues for 6 months to 1 year, then be rest assured that if you chase you current tenants out, you might not get another tenant for a very long period of time.
Consumer Foreclosures
When people are in debt either through student loans or mortgage, and a lot of people already got mortgage for homes they can’t afford at a go but thought they would be able to pay as time went on but with the pandemic and the loss of jobs, a lot of people will have to leave their dream homes after which there will be no one to buy because everyone is watching their finance and trying to grow their status again.
Low Demand for real estate
The price of real estate goes up when there are more buyers than sellers and the price goes down when there are more sellers than buyers. After looking at the current situation, is it possible to say that the price of real estate will be going up?
It is unpredictable, but I think the trend will be for prices to be high
Thanks for the comment. Truthfully it is unpredictable but the fact that history always tend to repeat itself makes it somewhat visible.
Particularly in trying to get a suitable answer to your question, it should be considered:
1.- One of the most recent references in relation to the fall of the real estate market, when you say:
Certainly after the mentioned crises the recovery of the real estate market was hard achieving "some" balance gradually.
2.- In a totally atypical scenario with an unusual protagonist such as a pandemic, the consequences of the fall of the real estate market are obvious:
In the face of such uncertainty, what actions should property owners, tenants and real estate agents take in order to move forward?
3.- Last but not least, one aspect that you consider to be particularly important is the loss of jobs and purchasing power:
Presenting this scenario, the possibilities of a rise in the price of real estate could go against any previous prediction or reference of similar situations, due to the social contour and the affectation to society at a global level.
Thank you for this interesting publication, congratulations
Thank you so much for the detailed analysis.
Seriously, I think real estate will drop in price after the pandemic because just like you have rightly mentioned, a lot of people will lose their job (it is already happening in my country), most business will close down and it might not be easy for rents to be paid.
You have raised a valid point, the entire system might crash and people will be more concerned about feeding than they are about rent.
I doubt if the price of real estate will be going up, people are more concerned about feeding now more than they are concerned about any other thing.
Many people who own multiple real estate properties will likely sell them.
Then supply will exceed demand, lowering prices.
Absolutely! Juan, more real estate owners will want to sell off their properties in order to get money and this will make the value drop as there are more people who want to sell.
That's right! I totally agree with you.
I expect real estate prices will go down.
Interesting read - thanks for sharing.
Thanks for reading.