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Turnkey Real Estate Investing

4 min read

4 Qualities that Define an Uncrashable Real Estate Market

Wed, Jun 22, 2022

housingmarket-realestatebubble-housingcrash-investinginrealestateThe housing market slowdown is on its way. Both rising interest rates (topping 5% for a 30-year-fixed rate) and inflation have Americans thinking twice about buying a home, especially for the first time.

We’re seeing that reflected even in the busy Spring and Summer homebuying seasons, where demand seems to be petering out from its pandemic highs.

It’s not that demand is gone, but the market is far less competitive than it was two years ago. That’s good news for anyone still looking to buy, but don’t be fooled – prices have yet to come back down to earth. Gains may be slowing, but chances are the costs of both renting and owning a home will remain high, particularly during this inflationary period.

Of course, any time there’s a market change and especially when that market change is perceived as negative, we start hearing talk of the market crashing.

We’re not here to tell you whether that will happen. What we are here to do is to give you the peace of mind you really want: knowing that your investments are sound.

What the Experts are Saying

Mortgage Professional America (MPA) recently published an article highlighting which markets would be hit hardest in the event of a real estate crash. The markets at the highest risk (that is, those that would be most impacted) were:

  • Atlanta, Georgia
  • Boise, Idaho
  • Cape Coral, Florida
  • Deltona, Florida
  • Des Moines, Iowa
  • Jacksonville, Florida
  • Lakeland, Florida
  • Miami, Florida
  • North Port, Florida
  • Orlando, Florida
  • Winston-Salem, North Carolina

Clearly, Florida got the short end of the stick! You’ll notice that, surprisingly, eight of these eleven markets are in the Southeast corridor – a region that has been booming in recent years due to migratory patterns, weather, and the cost of living. The reason they’re at risk comes down to building efforts and the chance of overbuilding. Which, in the event of a market crash, presents a real problem.

But how do you know that your real estate market is safe (or at least, safe-ish) from a bursting bubble?

4 Qualities in a Crash-Resistant Market

#1 – A robust local economy

In the end, it’s all about economics. Just about every market is suffering in this regard in one way or another, due to labor shortages and inflation, but there are those that have existing and potential strength. Economic diversification – that is, a variety of diverse industries within a market – mitigates risk just like the diversification of your portfolio.

Our favorite example is Houston, Texas, in the wake of the Great Recession, Hurricane Harvey, and various oil market disasters. People kept expecting the Texas titan to fall, but it never did. That’s largely because Houston has a diverse economy that no longer relies on one industry for success.

#2 – High-quality amenities & public services

Steady and sustainable population growth points to long-term demand and thus, long-term market health. While jobs are the top draw, jobs are becoming less and less tied to any one physical place on the map. While we may encounter a work-from-home reversal in the coming months (as we’ve seen in Elon Musk’s recent Tesla ultimatum to return to the office), market services and amenities are what give the population staying power.

Conditions for raising families, activities, school quality, proximity to attractions and retail, quality of public works and services…these are all incentives that drive people not just to places, but to put down roots.

#3 – Household income on the rise

American income has not kept pace with inflation in a long, long time. Part of the problem with the real estate market now is that more and more people are being priced out. They simply can’t afford it. When a market sees an upward trend in their median household income, it’s a sign of better jobs and growing wages. This both incentivizes population growth and helps residents afford to live where they are.

#4 – Room for real estate development…but not too much

This is a double-edged sword. On one hand, overbuilding is going to be the biggest factor in the intensity of any market crash. At the same time, it’s the markets that lack buildable space and inventory that see the greatest price increases – and threaten to buckle under their own weight. If there is to be a rebalancing of supply and demand, it must happen slowly and intentionally. Inventory should be added to meet demand but not based on hype or lofty predictions.

Ultimately, real estate investors need to keep their focus on markets that:

  • Have current and sustainable real estate demand.
  • Have business-friendly local governments and a diverse economy.
  • See steady population growth.
  • Have room for new home building and development projects.
  • Offer opportunities and a good cost of living in a remote working world.

No market is totally impervious to a downturn. However, some are more vulnerable than others! It’s up to real estate investors to do their due diligence in selecting tenacious, reliable investment markets.

 

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Chris Clothier
Written by Chris Clothier

Entrepreneur, writer, speaker, ultra-endurance athlete, husband & father of five beautiful children. Chris puts these natural talents on display every day. As a partner at REI Nation, Chris addresses small and large audiences of real estate investors and business professionals nationwide several times each year. Chris is also an active writer, weekly publishing real estate, leadership, and endurance training articles.

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