These four reasons are proof that we aren’t heading for a crash.
If you’ve been reading the headlines, you might be anxious that we are heading towards a crash, as we saw in previous years. Prior experience has left us with a post-traumatic stress response and leaves us concerned for the future. The fact is that there are four reasons why a catastrophic crash won’t be heading our way:
1. The equity gap. This is the difference between the total mortgages on a property and the total value. Compared to 2005 and 2006, that difference now is quite substantial. At that time, the gap was very small, and it only took a small dip to put people underwater. Many of them felt that they should walk away rather than pay into a depreciating asset. Fortunately, we are far from that situation right now.
2. AirBNBs and short-term rentals. These didn’t find their footing until much later on, which is why you probably don’t remember them from back then. Instead of walking away from investments that were falling down, investors are now more likely to look at these as opportunities.
3. Liquidity. This is just a way of saying that everyone has money, and it touches on the equity gap. Everyone has equity and two lines of credit. Along with this, the government has pumped a ton of money into the economy, so it feels like everyone has the cash to invest with. This is an entirely different situation than during the last crash.
4. Rent growth. One of the most important factors is that rents have gone up. When we look at the median sales price, we’ve gone from $619,000 in August 2005 to $849,000 in August this year. That’s a 37% increase. Now when we take rent into account, we see that, for your average two-bedroom apartment, rent went from $875 to close to $2200, a 150% increase.
This all means that there are options for acquisition now that did not exist before. In this constrained market, people are looking for those opportunities, which will exist in the next couple of years.
Of course, your specific strategy is going to be unique to you. If you want to talk about strategy, or if you have any questions about this, please don’t hesitate to give me a call. I’d be happy to help you out.