Can We Learn From The Real Estate Recession During The COVID 19 Crisis?
The Last Real Estate Recession
A lot of people are looking at the Great Recession and comparing it to the current times with COVID 19 in the real estate markets, and in my opinion, these are two very different scenarios, however, there are some general fundamentals that tend to stick around during the Recessions of the past.
Rule #1 – Don’t Lose Money
The investing great, Warren Buffet, has an investing maxim where he says, “Don’t lose money.” A great example of this is almost all of the previous recessions in US history. What I mean by this is if we look at the average time that it has taken for stocks to lose money during previous recessions, we see that it takes about 1 year to 18 months to hit “bottoms” in the investment markets, while it takes on average almost 2 years for those numbers to come back up to previous levels from there.
If we look specifically at the previous recession we see that it took just shy of 1.5 years to hit the previous investment bottoms, while it took close to 4 years to recover stock prices back to the previous investment prices.
The Rich Invest Their Money
If we look at the historic disparities between the rich and the poor, we see that the fastest markets to recover in these recessionary times tend to be the investment markets. This means that if you were to invest your money you would gain your wealth back at a faster pace than if you were living on wage earned income. This generally can most be seen when markets hit their bottom and the unemployment rate drops because the stock market starts to come back before then, and those who had lost money are now living back at their previous levels, while jobs are still lagging to pick up and therefore causing a delay in the return to a normal lifestyle for those wage earners.
When In Real Estate – Cash Is King
When times get rough and people start to panic a lot of opportunity is created in order to make moves ahead for yourself and your loved ones. In real estate, people tend to panic thinking the bottom will fall out almost over night, but in reality it takes time for these markets to move and therefore if you are prepped and ready with as much cash as possible at the times of panic for sellers you can really make it easy for them to let go of their properties for good prices, and you can then hold on to those assets into the future and take advantage of the value add plays and the eventual appreciation plays that exist in these types of real estate investment markets.
When People Panic – They Downsize
When looking at markets that are historically high priced, we see that in times of recession people tend to panic and leave these areas, or lose their jobs and are not able to afford living in these areas much longer, therefore the demand starts to go out towards the more affordable areas, and that demand increasing is good for investors in those areas prior to these recessions. If you tend to own real estate in high net worth and over priced areas, that real estate will take a dip in a hard way depending on the amount of panic there is in the market, and the resilience of the job markets, however, when you purchase investment property in Bakersfield, the market tends to be pretty steady because people will flee to this area to live in nicer places and have a good job where they can afford their life instead of having to live paycheck to paycheck.
In my opinion, I do not believe that the Great Recession is much going to be like the COVID crisis, however, the points given above I believe tend to stay true over time and will most likely continue to remain true during this COVID crisis. I believe that real estate is a good investment, especially if you look at the secondary and tertiary markets when investing because those markets tend to see an influx of people as things get bad in the primary markets. Even in those secondary and tertiary markets, we can see that cash is king. If you know what you want, and go after it and make it easy for the seller to sell you their property, your life becomes much easier and you can tend to pick up deals that you might not have gotten otherwise.
Until Next Time,
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