Is There a Real Estate Crash Coming??

By Lucas Smith | August 27, 2021

I think it’s important to have the benefits of hindsight when you’re working in an industry for over a decade, but I’m not so sure about making predictions as far ahead into the future. Every January we see economic forecasts from scholars and pundits which will give their opinion on what is happening next year or even farther out than that. None of them seem credible–they all contradict each other!

But it’s August, and you may be thinking, why look forward to January? Well when Christmas decorations come out next month (or in November for the countries who celebrate other holidays) then I know it has only been 4 months. The last few weeks have flown by!

I always like looking back at previous Nostradamus events too- especially those that happened on February 20th 2020. Northwest Mutual put together a panel of experts with one gentleman talking about how awesome he is – if there were awards handed out for being an expert speaker or something…

“What do you expect? It’s 2020.” -T-Rex

“The recession is coming,” says the T. Rex, and it does sound familiar. For those of us keeping score at home there have been five since March of that year with no signs of slowing down yet! So when or where will this downturn be happening?

Uncertainty is a powerful force. It can stop an economic boom quicker than anything, and that’s if it doesn’t kill one outright. When business owners are unsure of the future, they postpone buying decisions – which trickles through our world like waves on the shoreline.

Let’s now talk about uncertainty: this little word packs quite a punch because when businesses or investors are uncertain of what will happen next (or even in ten minutes from now) then their prioritization shifts to short-term solutions rather than long-term investments. This “pause” trickles through our economy as we all wait for buyers to return before investing once again; but it takes longer each time due to high levels of uncertainty

In 2008, the financial meltdown caused a slight dip in housing prices and we saw an amazing opportunity for buyers. Tenants also had access to some great deals on rent given that many people were abandoning their homes during this time period before it became clear things would get better.

In 2008, when our country’s economy took a turn for the worse with skyrocketing unemployment rates as well as dwindling real estate values due to banking restrictions enforced by Congress under TARP (Troubled Asset Relief Program), opportunities abounded! The average home sold at 17% less than its pre-recession price of $400K while houses worth more than $1M lost 50%. Rentals went down too; however tenants could enjoy considerably lower rents because so.

For most of 2020, industrial activity slowed down as shoppers started to purchase products online. But then in June something unprecedented happened that would have a huge impact on the economy for years to come: people stopped buying things at malls and began clicking on their keyboards instead.

The world has survived periods of depression, economic instability and pandemics. And yet the opposite always seems to happen in real estate markets: the worse it gets with inflation, recession or commodity shortages; the higher prices seem soar for homes!

The downturn is coming, and it must. The question isn’t what form the next crisis will take—it’s when. Will this be an increase in interest rates? A power surge that wipes out our electricity grid? Or just a burst of the pricing bubble or something else altogether? I can only hope my crystal ball doesn’t turn any more cloudy than it already has been!

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