Don’t let the photo fool you, I do not have a crystal ball. Nonetheless, I decided to turn around and ask all of you homeowners a question: Are your real estate holdings recession-proof? While virtually no real estate is completely protected from the whims of the market, there are certain types of homes which are better insulated from downturns.
To be clear, this article is not meant to be a prediction, but a simple look at the long-term trends of any economy shows no prosperity lasts forever. After all, the economy is going to correct, that is inevitable. The question is whether your real estate strategy (yes, you should have one) is anticipating this eventuality or simply hoping for the best.
It’s rare that in any given week I don’t have a conversation with someone about this dilemma. It’s what I call the “Should I Stay or Should I Go”. (Full disclosure: I stole this saying from a respected colleague) There is no one answer to this question since everyone’s situation is different, but my conversations have unveiled multiple scenarios where homeowners should consider making a move in this seller’s market. They are as follows:
You Own A Home That’s Value Got Clobbered in the Great Recession: If you bought before the Great Recession and took a hit on your property’s home value, you might still be trying to make your money back. Depending on your equity position (how much your home is paid for), this can get dicey. The trap is for some homeowners to try to “break even”. This often means waiting out long periods of prosperity, closely watching comps and hoping that the market doesn’t sour. While this can work for some people, I often encourage homeowners to consider the big picture and ask if it would be better to take a minor loss on the house now or try to sell at a bigger loss in a down market. Again, there is no one size fits all answer here, but I ask it nonetheless. In some areas, home values were so inflated during the housing peak of the 2000s that it will still take ANOTHER 10+ years to get back to where they were. It might be worth cutting your losses if you can’t wait that long.
You’ve Been Thinking About Downsizing: Inevitably (and hopefully), once the kids move out, you have more space than you need. Often times, homeowners will take several years to decide whether it’s the right move for them to downsize and it can be an emotional process, but rarely do I find someone who regrets it. Whether it’s the lower mortgage payments, less upkeep etc. it usually makes more sense than not. Another thing to consider is most Americans live in smaller housing and this means that your smaller home will be more attractive to more people even in a down market.
You Own A House That Will Require A Special Buyer: A weird/deteriorated house in a strong market can sell relatively quickly, but if you own a house where someone is gonna need some imagination it might be time to move into something more straightforward. Buyers and investors have lots of cash right now and odds are that you can get decent money for it. In a down market, these homes will be very hard to sell since inventory levels are usually higher and there are only so many buyers.
You Own A House in a Newly Developed Area: If you’ve bought in an area that is hot and values have gone up faster than the market average, it is possible your home could be more vulnerable than most in terms of its value. If you got in early, you should have some equity built in from the increase in your property’s value. If so, it might be time to cash out if you don’t foresee yourself living there long-term.
These are just some examples of where considering a sale of one’s property might make sense. After all, buyer behavior is a funny thing… economic prosperity like we’ve enjoyed over the last several years can play tricks on the mind. There will be no announcement, no press conference when things turn south. I do not see myself as an alarmist, I see myself simply as someone who is reminding everyone that markets cool off and potentially “correct”. Are your real estate holdings prepared for that day?
I would be happy to showcase your question in my next installment. Go ahead…Ask me anything! If I use your question, I will send you a gift card of your choice or donate money to a charity on your behalf.
Seth Lejeune – 610.804.2104 – firstname.lastname@example.org / Berkshire Hathaway – Fox & Roach
Seth is a licensed REALTOR and small business owner based in Philadelphia, Pennsylvania.