Potential Real Estate Downturn Preparation
Is it time to start reading about Potential Real Estate Downturn Preparation?
Investing in real estate is a recurring business. The market revolving around this industry fluctuates. For example, in 2020, the real estate market in San Diego, CA, experienced a 13% annual property value increase. A recent press account indicates this statistic.
When broken down, this is excellent news for property owners in San Diego, CA. Unfortunately, this doesn’t hold many benefits for the newbies entering the real estate market.
There has been a significant real estate plunge since World War II, and there is a forecast that there eventually will be another one of the same kind.
Here are four red flags of a Potential Downturn in the real estate industry:
1. A rapid increase in housing prices. More people are inclined to purchase a home rather than renting. Real estate agents take advantage of the overcrowded client base to hike the housing prices.
2.A decrease in inventory.
3.The fallacy that the real estate market only appreciates.
4.An increase in interest rates.
Like any other business, real estate investing (REI) uses the law of supply and demand. This law demands that when a commodity experiences an appreciation in price, the number of buyers tends to go down as a result of being effectively priced out of the market – in this case, the real estate market.
Over the decades, real estate has relied chiefly on first-time homebuyers entering the market’s lower end. This, gradually, allows the previous lower-end owners to move up to the middle and the previous middle buyers to move to the top end of the real estate market buyer’s scale.
This process relies entirely on a rising homeownership rate.
Unfortunately, the past couple of decades have seen a significant drop in homeownership rates. For example, let’s take the statistics from the year 2004 and the year 2020. In reference to the US Census statistics, the homeownership rate in 2004 was 69% compared to 65.8% in 2020. That is a 3.2% decrease in less than two decades.
In simpler terms, the standard upward-mobility structure since World War II has been prevalent. This means that the pattern in housing since then appears to be going down, or rather reversing.
There is only one reason why this drop happened – for many years, wages have been virtually flat.
To break it down, this means that an average adult in America has less or no money to spend or even make the littlest savings. For example, a recent report says over 70% of American adults don’t have $1,000 saved to overcome a problem in an emergency.
Also, another report states that fewer first-time homebuyers are emerging into the real estate market due to changing population demographics.
Over ten thousand people have migrated from the Northeast to the sunbelt, where tax rates and business conditions are friendly. This results from higher taxes and an unfavorable business climate in the states where they were previously residing.
This trend has also seen most companies move from the Northeast as well. Furthermore, as technology advances, many lower-end jobs are being replaced with automation and robotics. It has been estimated that most trucker and taxicab jobs may be eliminated over the next decade.
COVID has also led many homeowners to fall into a pit of debt.
Despite all these warning signs, some real estate investors still go above and beyond to take even bigger risks.
Is the Real Estate Crash Eminent Soon?
Probably not. This doesn’t mean that the run-up in prices will go on forever. The downfall of this cycle could be in a year, two, or beyond. No one has an answer to that.
The Biggest Caution Sign
Real estate is interest-rate sensitive. If the rates go up, that could be the foundation of the Downturn.
Suppose you foresee a downturn. In that case, it would be of help if you did the following.
1.Buy and hold on to your investments.
2.Use flippers and fixers.
Be sure to have another option before you put your property under purchase. This can be a cash buyer investor like JAM Properties, LLC.
The Best Part
If you are a homeowner and are thinking about selling your house, please don’t hesitate to contact JAM Properties, LLC.
JAM Properties, LLC is located in Orange County, CA and Phoenix, AZ, and its workforce is committed to buying distressed properties for cash. They then renovate the property and resell it.
Whether you are selling your home or a real estate investor who wants to learn about fixing and flipping houses, JAM Properties, LLC is your best bet.
Contact us today!