You’re certainly not alone if you’re wondering, “Is the real estate market slowing down?” The short answer is yes, but not to catastrophic levels. A more detailed answer is outlined within the rest of this article. We’ll explore the question in more detail, as well as share the key reasons why the real estate market isn’t about to crash. Plus, we’ll share a great way to invest in real estate at considerably lower levels of financial risk.
Is The Real Estate Market Slowing Down To A Crash?
To find a worthy comparison to current times we need to go back to the period before the last real property crash, the period around 2005-2007. Toward the end of that period home prices crashed and the entire market slowed to a near stop. A lengthy real estate bubble burst, and not just the US, but the global economy entered a vast period of downturn.
It’s 2023 (at the time of writing) and the market is threatening to do the same again. Mortgage rates are rocketing, a recession appears to be unavoidable at this point, and the word crash is on everyone’s lips.
Generally speaking, most economists agree that house prices are on a downward trajectory, but not with the severity that we saw back in 2008. One of the most important factors fighting against the downward spiral is the homeowners themselves. Thanks to strict mortgage lending criteria, it tends to be those with solid credit, and stable balance sheets, that are mortgage holders. Better personal finances, a low fixed-rate mortgage, plus a solid amount of equity, means that we’ll see considerably fewer foreclosures. This
Five Key Reason The Real Estate Market Isn’t About To Crash
Thankfully, there are a number of reasons why the real estate market isn’t slowing down, and shouldn’t be about to crash. The following five reasons are good indicators contrary to a recession:
According to the National Association of Realtors, the supply of homes for sale was likely to last 3.3 months back in November 2022. That supply had dropped to 2.0 months in February. This persistent inventory shortage explains why buyers continue to bid up prices and indicates that the supply-demand balance will not result in a price crash in the near future.
Builders Are Behind Demand
Following the previous crash during the Great Recession, homebuilders significantly reduced their activity and never fully recovered to pre-2007 levels. They are now unable to purchase land and obtain regulatory approvals in time to meet demand. There’s no denying that builders are trying to increase their construction as much as possible but they simply can’t keep up. That means that it appears a repeat of the excessive construction of 15 years ago is unlikely.
House Buying Is A Growing Trend
The demand for housing is strong, and that can be said from the perspective of many demographics. Many homeowners realized that they needed larger homes during the pandemic, especially with the increase in remote work coupled with a desire for outdoor space. Demographically, Millennials, a sizable population, are in the midst of their prime home-buying years. Furthermore, Hispanics, a young and growing demographic, are eager to become homeowners. Home buying is so on trend that more and more people are looking to find real estate side hustle ideas, just to get into the market.
Lenders Are Still Strict
In 2007 lenders were running free, on a very loose set of reins. Loans were given to people with poor credit, without proper documentation, and without any real indication that they could pay the mortgage for the term. Following 2007, far stricter rules are imposed on borrowers, plus most mortgage applications come from people with exceptionally good credit. That strictness needs to remain in place, a loosening of the rules means weaker borrowers being accepted, and a crash won’t be far behind.
Foreclosures Aren’t Accelerating
In the aftermath of the housing crash, there were millions of foreclosures pumped onto the market. This caused prices to drop rapidly and by significant amounts. That is not what is happening in our current situation. That is, in part, thanks to higher amounts of equity in properties and the fact that the majority of lenders halted foreclosures during the pandemic. In fact, in 2020, that led to the lowest ever recorded foreclosure rates.
Is There A Safe Way To Enter Real Estate At The Moment?
It’s no surprise that investors are tentative when it comes to investing in real estate at the moment. As mentioned above, demand still outstrips supply, but there’s definitely an air of nervousness in the market.
That means that more and more investors are looking at less risky, lower capital, ways to invest in real estate. That’s where platforms such as Getaway have rocketed in popularity. With the option to invest in property using a fractional model becoming more and more commonplace, investors have more options when it comes to their investment.
Using the fractional real estate investment strategy means that you’re able to spread your risk. Rather than investing all of your capital in one vacation rental or rental property (putting all your eggs in one basket), instead, there’s the option to spread your investment across multiple properties. These properties then pay dividends according to the fraction of the property you own. It’s a similar rate of return, but for a fraction of the risk.
The beauty of fractional real estate investment is that you can get started with as little as $1,000 and scale from there, opening up the property market to investors of all levels. You might be wondering how to invest $20k. That’s not likely to get you a great mortgage rate, but it’ll get you a decent fraction of a holiday rental.
At the moment, it doesn’t seem that the real estate market is slowing down to the point of a crash. Yes, there are some indicators that the market is slowing down, but, for now, we’re not heading to the catastrophic scenes of The Great Recession.
- Conditions in the market at the moment are more likely to slow progress toward a crash.
- More and more demographics are showing interest in home buying.
- For those looking to invest in a more diversified way, fractional real estate investment is a great option.