What Happens in Real Estate?
Many seasoned real estate agents know that a market crash can be an opportunity to develop new skills and diversify their business model. For example, offering to manage your clients’ short-term rentals can help you generate additional stable revenue without selling properties.
Finding work and feeling financially secure when the market crashes can be tricky. But if you’re prepared to take advantage of it, you can thrive in a recession.
Real estate has long been considered a safe investment, but recessions can cause prices to drop. As a result, potential homebuyers should be cautious when buying homes during this time. They should focus on local trends, as prices vary nationwide and even within a single city. This is why hiring a professional realtor who can help you find the best property for your needs is essential.
A real estate market goes through several stages, starting with a feeding frenzy. In the first stage, homebuyers are eager to buy properties, and there is an increase in real estate investing and house flipping. This phase lasts until local incomes cannot keep up with rising housing costs. As a result, blue-collar workers begin to relocate and seek areas with lower living expenses.
In the second stage, speculators enter the arena and buy up real estate, driving prices up even further. The limited supply drives demand, so prices continue to rise until they reach a ceiling. At this point, prices become unaffordable for most standard buyers, and the market begins to slow down.
After the market slows down, investors hesitate to purchase properties, and foreclosures are rising. In addition, bank-owned properties are beginning to appear on the MLS, although it typically takes nine months to a year for them to be cleaned up and put back on the market. This is a good time for sellers who bought during the peak of the previous market cycle to sell off their properties.
Real estate is a feast or famine industry, and it is difficult to make a steady income unless you are an experienced agent. However, even though sales and transactions decrease during a market crash, it is still possible to have a successful career in real estate. This is because agents make money on transaction volume rather than property values. If you have a good relationship with a client and can outcompete newcomers, you can still make money in a downturn.
Real estate agents can also survive a market crash by diversifying their investments. For example, they can invest in stocks or mortgage-backed securities, a safer option than traditional real estate investments. Additionally, they can use their cash reserves to purchase low-risk assets like land or oil. These investments can yield high returns and stabilize a real estate broker’s portfolio during a downturn.
While a market crash isn’t always good for real estate, it can open new opportunities. Real estate agents make money on transactions, not home prices, and a market crash drives down transaction volume, which can lead to less competition. This makes it easier for experienced realtors to outcompete newcomers and feel secure in their monthly income.
When housing inventory is low, it becomes a seller’s market. This puts buyers on the back foot and limits their choices. It also means that homes can be sold within a very short period and at a high price. This can be frustrating for buyers who need to buy a home within a specific timeline and have a strict budget.
As a result, many homeowners decide to stay put and skip the market altogether during a crisis. This creates even more housing supply shortages. However, it can be an excellent opportunity for investors to purchase properties in a buyer’s market and take advantage of higher property prices.
During the COVID-19 pandemic, people fled urban centers in favor of suburban and rural communities with cheaper prices and easier commutes. This has caused a significant increase in sales in these areas and a decreased demand in more expensive markets.
Cash offers are another sign of a competitive real estate market. With the COVID-19 pandemic and other economic uncertainty, people have little reason to keep their homes when they can get a better deal elsewhere. This creates even more housing shortages and can cause sellers to sell their homes at a lower price than they would have otherwise. This is why buyers need a top buyer agent to help them win in a bidding war.
If you’re a real estate agent, the last thing you want is a market crash. After all, when home prices drop, so do your commissions. But a market crash can open new doors for you by separating opportunities. Realtors make money based on transaction volume rather than individual property values. As a result, lower home prices can increase your perception of value as an agent and lead to more sales.
A buyer’s market happens when there are more homes available than homebuyers. It’s a fundamental law of supply and demand and an essential factor in the real estate cycle. Homebuyers are usually more cautious during this stage, and it’s an excellent time to negotiate on price.
In a buyer’s market, it may take longer to sell your home, and you might need to offer incentives such as paying for a home warranty policy or putting in a home maintenance fund. This is a common strategy for first-time buyers, as well as investors.
During this phase, the lion’s share of buyers are investors looking to take advantage of low mortgage rates. However, many of these investors are overleveraged and are taking a risk on the expectation that home prices will continue to rise. On the other hand, homeowners are cautious, especially those who haven’t seen significant appreciation in three to five years. This stage is known as the trough, and it can take a while for a housing market to recover from it. That’s because national trends can mask local economic and demographic factors that drive market changes.