Strategies for Coming Out Ahead in a Negative Real Estate Market
It’s not a matter of if, but when.
The real estate market is like any other market—it’s subject to peaks and valleys. And a negative real estate market can drive down the price of a perfectly good house before the owners realize what happened.
That’s why it’s vital that you keep some strategies in mind for coming out ahead even in difficult real estate market conditions.
Recent statistics have shown a growing disparity in the average price of homes and the Housing Opportunity Index, which suggests that housing prices may be in another “peak.” But what happens when the next valley comes? Fortunately, there are plenty of strategies for giving yourself more security for a market downturn:
Don’t Imagine Tomorrow Will Be Like Today
The first mistake most homeowners make is assuming that the current market conditions will continue uninterrupted.
But because real estate is a market with peaks and valleys, one can only expect that its conditions will one day change. According to an article by Teo Nicolais of the Harvard Extension school, Fred E. Foldvary predicted the housing crisis of 2008 all the way back in 1997, simply due to his knowledge of these cycles.
Does that mean that a crash is inevitable? No. But homeowners should be wary of assuming that today’s market conditions will necessarily extend into tomorrow’s.
Harvard pointed out that “as early as 1876, Henry George observed the curious cycle through which real estate markets inexorably move.” That means that you should not only accept the possibility of a negative real estate market but take the time today to make a few potential plans should you encounter one of these markets for yourself—whether it happens on a local or a national level.
Selling Your Home Near the Peak
People who want to avoid a negative real estate market find themselves most concerned about timing.
But how do you master the art of timing your home sale? Zillow released a list of tips for market timing that suggested the best times to sell were in the springtime (April or May), for example. Unfortunately, this doesn’t tell us a lot about avoiding a negative real estate market trend that may last a few years.
How can you tell when the real estate market has hit a peak?
- Sales start slowing down or topping off. According to MarketWatch, the demand for new homes can sometimes reach a peak when interest rates increase without subsequent increases in home affordability. That elixir can then shut down demand for homes, which in turn lowers the average sales price.
- Forbes points to “the great 18-year market crash” that bore out in 1990-2008. We’re still a long way from the average interval between these negative real estate markets, which should give homeowners some confidence—but it should also be noted that this interval is by no means scientific or 100% predictable.
- TheBalance points out that 2017 saw new increases in pessimism from the general public when it came to housing. Like any of the other variables here, make sure to take it with a grain of salt—as public sentiment can also swing the other way when things pick up again.
What is a homeowner left to surmise? If there are a multitude of red flags signaling a potential sell-off in homes—indicating a subsequent downturn in the market—then there may be some cause for concern. However, it’s also important to think about your individual needs and whether putting your house on the market sooner rather than later is truly in your best interest.
If you do believe that a negative real estate market is about to hit your area, here are a few things you might consider doing to minimize your risks:
- Sell when you’re confident you’ll get a good price. This is especially important for those who already know they want to sell—if you think you can get a good price now, then there’s no time like the present. It’s possible that you may be wrong about the market and that it may continue climbing, but if you wait too long, it’s also possible that your home will eventually decrease in value. There’s nothing wrong with locking in a good price.
- List your home. In a slow market, it takes longer for a listed home to sell—that’s just the nature of lower demand. That’s why it’s important to go ahead and list your home early if you catch a market shift and want to get out of it as soon as possible. Waiting too long for the market to dip further will only work against you. And working with a great real estate group to provide you with the proper guidance and marketing strategies to sell your home will work to your advantage.
- Monitor the market. At the very least, you should take a few minutes out of every month to review how homes are selling in your area. With today’s technology, it’s never been easier to find the prices of nearby homes. Simply setting a reminder every so often will help you get more context over your local market and whether it’s time to take action.
Renting Until the Market Softens
While it’s always great to sell your home near the peak, that doesn’t mean it’s also a great time for you to buy your next home.
In that case, you’ll need to stay flexible. One strategy that might help you navigate a negative real estate market is to rent for a time until you can take advantage of a more favorable market for buyers.
Timing the market can be difficult, but if you’re willing to be flexible, you can improve your results. As MarketWatch noted this year, an anticipated buyer’s market in 2020 could make now the ideal time to capitalize to get the most for your home sale, and then wait to take advantage of a shifting market before you buy again. Quoting a survey conducted by Zillow and Pulsenomics, the story pointed to a majority of economists seeing the U.S. economy in a recession by 2020—which would, in turn, help those who are looking to stretch their real estate dollar.
Some people believe that renting in the short-term isn’t an ideal solution for timing a negative real estate market. But renting is perfectly viable, especially if you have the financial freedom to enjoy some great housing in the meantime. In that case, all you have to do is wait.
One caveat: it’s important to talk to a qualified real estate group before you consider drastically altering your lifestyle. Consulting with them won’t only give you a better feel for the market, but can introduce you to some short-term options for your strategy that will help you ride out a negative real estate market.
Taking the Emotions Out of Your Decisions
One of the reasons most of us fail to accurately “time” a real estate market comes down to one word:
We let our emotions get the best of us. Fear, impatience and worry about the future sometimes prompt us to take actions we otherwise wouldn’t. According to Investopedia, this is the number one mistake home sellers make when selling.
Emotions have a way of clouding our decisions. That includes positive emotions. Overconfidence in the real estate market can make us wait too long to list our home, only to find out that our expectations were too high and we should have listed the home sooner.
Emotions also affect the way that you interact with a real estate group. A real estate group with a lot of experience in your area will likely have plenty of tips and strategies for navigating an uncertain market—but it’s tempting to throw that aside when you’re afraid of a negative real estate market sinking even further. It’s better to be patient and find a real estate group you can trust. Their experience in navigating these markets will help you to move through them with the patience necessary to come out on top.
Prepare Yourself for a Negative Real Estate Market
In medicine, there’s a saying: an ounce of prevention is worth a pound of cure. The same is true in real estate. If you can prepare yourself for the possibilities of a negative real estate market now, you won’t have to overreact in the presence of one later. Here are a few things you can do to prepare yourself:
- Find a great real estate group. Working with a communicative, experienced real estate group will give you access to a wide range of strategies you might have never otherwise considered. Having access to these strategies can be the difference between coming out ahead and simply treading water.
- Watch the market for twists and turns. If you’re already on the fence about buying or selling a home, now’s the time to pay attention to the turns in the market. Is the market headed towards less affordability? If so, the time to buy is now. Is it headed toward more affordability? Then the faster you sell your home, the better you’ll come out.
- Have a plan in place for capitalizing on prices. What if you see a new “peak” in housing prices that make your home an ideal “sale”? Do you have a plan in place for capitalizing on those prices? If not, consider some of the techniques listed in this article—including renting for a time, if necessary—to make your transition to the next house easier.
A negative real estate market might be scary for some—but it’s usually those without a plan in place who suffer the most drastic turnaround in prices. With the right real estate group and a plan in advance, you can take advantage of the movement in prices and come out ahead.