As real estate investors in the current time, we have seen many recessions prior to this. The most notable being the recession in the early 2010’s. The biggest difference there was that we could see it coming, and that there were very clear markers of the recession coming and the impending problems that would come because of the uncertainty. With COVID-19, it essentially came out of nowhere and had spread across the world in a matter of months, and after the initial spread it proved to be a problem that no one had seen before and the entire world was under-prepared for.
Recession and Real Estate Investing
Most investors saw the last recession coming and could have predicted its soon to be problem, but everyone seemed to be so busy lining their pockets that they seemed to forget the fundamentals of real estate investing. In Bakersfield, as with many other places, the property values were rising and it seemed to be going well for everyone. People were purchasing homes and, within a matter of a month, selling them and making a profit without doing much to them. It was a good time for a lot of people who were looking to real estate to help them make a little bit of extra money.
Once the recession hit, people started to realize that this was going to be a lot larger problem than most people had expected and the real estate market continued to sour and lose value close to the tune of 50% of the highest values in the Bakersfield area, and more in some other areas as well. What this did for investors was it caught them off guard and bankrupted many people of the time. Some lessons that people came out of the recession with were to save, and not over leverage.
COVID-19 and the Bakersfield Real Estate Market
COVID-19 came at a time where many real estate markets were already at their highest peaks and often past those peaks as well. In Bakersfield, we were catching up to our previous peaks with the poise of passing them by a large margin within the next few years, given everything stayed the same, and out of nowhere came the COVID-19 phenomenon. This changed the world markets, and will in the long run, potentially cost the world economy trillions of dollars in value lost.
Leverage Is The Name of The Game
Again, credit was picking up and standards were becoming more lax, and it was starting to look like the real estate environment of the previous recession. Everyone was leveraging themselves, and with these new loans they were buying new things from cars to vacations to new houses, etc, and out of nowhere we are hit with this virus that effectively shut down the world’s economy by making sure that everyone was not allowed to work, and was forced to social distance from each other to help stop the spread of the virus.
Value In Today’s Business World
How is value created? As much as we live in a world that is based around switching to online communication and efficiency for world wide business, value is still created from the relationships and sales that are made everyday through face to face contacts and the like, for a majority of people. This means that when we are no longer able to go around our daily lives, we are losing value in the items which we have invested.
Lessons From The Previous Recession
Today, due to the changing environment and relative uncertainty about the future and the length of time this virus will be in effect, we are seeing record numbers of layoffs, businesses not being able to pay their employees or their operating costs, and much more. This, in the long run, means that many businesses will not be around to operate once this virus has passed us by, but the question becomes, what could we have learned to help us weather this storm, and what can we do in the future to make sure that we can weather a storm like this for our businesses as well.