Council Post: Why Recessions Can Be A Good Time To Invest In Real Estate (2024)

FAQs

Council Post: Why Recessions Can Be A Good Time To Invest In Real Estate? ›

Real estate can provide passive income that carries you through the financial lows. Owning a physical property provides you with a tangible asset you can rent, sell or leverage—especially when housing inventory and vacancy levels are extremely low.

According to business and capital news giant Bloomberg, stocks are unstable in nature and can easily be affected by economic crises. On the other hand, a recession has minimal effects on real estate. And since real estate is a physical, tangible investment, you can put it to use even if its value decreases.

If inflation continues to fall, interest rates will be cut, and high demand will increase. The housing market is predicted to improve overall, and it may be a good time to invest in real estate. Fortunately, for those beginning their search for a home, experts predict a slower increase in home prices this year.

Cash. Cash is an important asset when it comes to a recession. After all, if you do end up in a situation where you need to pull from your assets, it helps to have a dedicated emergency fund to fall back on, especially if you experience a layoff.

Some may not recover from a recession for years. Others may not recover at all. If you invest, you may experience gains or losses. If you don't invest, losses will be off the table, but you may miss the early stages of a recovery, or inflation may erode the purchasing power of your cash over time.

During a recession, there are usually fewer buyers, so houses stay on the market longer. This encourages sellers to lower their listing prices to make their homes easier to sell. You might find it difficult to sell during this period.

Although a recession isn't without risk to property owners, it does offer one key upside: Recessions typically hurt the housing market more than the rental market. Fewer people want to commit to the considerable expense of buying homes during a recession, so they opt to rent instead.

The best words to summarize the real estate investing landscape halfway through 2024 may be "cautiously optimistic." While home price increases have slowed since the madness of 2022, so has inflation, which should help reduce the costs of construction.

Buying a home this year, particularly in early 2024, might mean you're able to beat the rush, as the market could get more crowded if or when rates drop further. Waiting, however, could give you more options to choose from as supply improves, along with the potential for increased mortgage affordability.

Generally, stocks have proven to be more profitable than real estate. For example, U.S. housing prices have grown 5.4% year-over-year from March 1992 to June 2023, according to data analytics firm CEIC. During the same period, the S&P 500 has increased 8% in price.

Where is your money safest during a recession? ›

Where to put money during a recession. Putting money in savings accounts, money market accounts, and CDs keeps your money safe in an FDIC-insured bank account (or NCUA-insured credit union account). Alternatively, invest in the stock market with a broker.

Toothpaste, deodorant, shampoo, toilet paper, and other grooming and personal care items are always in demand. Offering these types of items can position your business as a vital resource for consumers during tough times. People want to look good, even when times are tough.

When the economy is in a recession, financial risks increase, including the risk of default, business failure, job losses, and bankruptcy. Avoid becoming a co-signer on a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt.

During a recession, stock prices typically plummet. The markets can be volatile with share prices experiencing wild swings. Investors react quickly to any hint of news—either good or bad—and the flight to safety can cause some investors to pull their money out of the stock market entirely.

Costs are often lower in a recession, and that includes capital projects and capital equipment. In a low-opportunity market, margin concessions are easier to negotiate from contractors and equipment vendors. That makes a recession the perfect time to save money on a purchase and thereby increase your ROI in the future.

Physical gold can be bought from individuals, jewelers, gold dealers, and some banks. There is no requirement to own an investing account to buy physical gold and the main factor that influences how much it is worth is the underlying price of gold (as well as how rare it is—a stronger factor for gold jewelry).

Look for 1-4 unit properties that would be suitable for rental so you can generate consistent monthly income. Unless you have cash on hand or are willing to take on additional debt during a recession, properties that need minimal improvements and have long-standing tenants tend to have less risk.

And as you might imagine, recessions are a risky time to buy a home. If you lose your job, for example, a lender will be much less likely to approve your loan application. Even if a recession doesn't affect you directly, if your area is hard-hit, that could have a serious effect on the local real estate market.

The best words to summarize the real estate investing landscape halfway through 2024 may be "cautiously optimistic." While home price increases have slowed since the madness of 2022, so has inflation, which should help reduce the costs of construction.

For the whole year of 2008, NAR reported that the median existing-home price dropped by 9.5% to $197,100, compared to $217,900 in 2007. S&P/Case-Shiller Home Price Indices: Home prices fell by 18.2% in November 2008 compared to November 2007 in 20 major metropolitan areas.