You may have noticed that the real estate industry seems to have taken on a tone of pessimism. Between tight inventory, rising interest rates, and the return of a buyer’s market, there has been no shortage of dismal and doomsaying headlines.
But let’s pull away from our emotional reaction to the recession and changes in the real estate market. We’re not denying that recessions are challenging. After all, we lived through the Great Recession, not just as individuals, but as REI Nation!
At the same time, however, investors must avoid looking at market changes in a binary – nothing is pure gain or loss, positive or negative. And in many ways, a real estate market slump can benefit investors.
Here’s what we mean:
7 Reasons Why a Market Slump Can Be a Good Thing
Reason #1: The real estate market is cyclical
At the top, we have a very simple reason: real estate slumps are a natural part of the economic cycle. That cycle provides a broad foundation of benefits simply by existing. We can wish that the market stayed as it is as much as we want, but changes aren’t just natural, but essential.
Reason #2: It allows investors to shift gears
Different stages of the market cycle, slumps and recessions included, demand that investors pivot their strategies. There are times, for example, when it’s most beneficial for investors to focus on buying. At other times, it’s better to focus on maximizing the value of what you already own. Not only does this keep investing from being monotonous, but it pulls investors away from any complacency.
After all, investing in real estate is most effective when investors – even those who are passive – engage, strategize, and continue to hone their craft. Market shifts force you to do that.
Reason #3: It provides a sense of balance
If a stage of the market cycle lasts too long, the market will lose its sense of balance. Just look at the state of the market after the Great Recession (which was an extreme anomaly in how it involved and impacted the real estate market, we must add). After the glut of foreclosures cleared, homeowners were reluctant to buy and sell while the devastated construction industry struggled to get back on its feet. As the market normalized, inventory lagged for nearly a decade.
Arguably, as a result, the issues with the 2020 housing market rush were greatly exacerbated as low inventory created a rabid frenzy among buyers. The lack of inventory is what ultimately drove the market to the unsustainable heights seen in the past several years.
Reason #4: It signals new opportunities
New circumstances provide new opportunities. A market slump, for example, is usually the prime time to get a deal on a property. When the market ecosystem changes, you have the chance to find these deals. You also have the chance to observe the performance in various real estate markets – helping investors identify the stable, high-performance areas worth targeting.
Reason #5: There's always another side to the market
The real estate cycle is inevitable. This shouldn’t fill us with dread, but hope. On the heels of a slump always comes a recovery – so making wise moves during the slump allows you to take advantage of the upswing! A buy-and-hold strategy shines here because the market will always swing back toward growth.
Reason #6: Fair-weather investors are weeded out
Some investors will jump into the market when profit margins are wide and investing is easy. The harder the market gets to navigate, the more nuanced and complex investing becomes, and the fewer investors we’ll see. That’s because many people aren’t prepared or willing to do the work. This cuts down on the competition for those of us who know that lasting success only comes to those in it for the long haul!
Reason #7: It means it's never too late
Perhaps the greatest advantage in a market downturn is simpler than we think. It means, at the end of the day, that it’s never too late for investors to jump in. Real estate isn’t a train you can miss at the station. Rather, it’s a merry-go-round that you can always choose to board.
If you feel like you’ve missed the window, rest easy. There will always be opportunities for investors of every level of experience, risk tolerance, and ambition.
Take advantage of every opportunity—not just the obvious ones!
REI Nation is here to help.