For the past several years, most of the country has experienced unprecedented housing price growth, with millions of homeowners cashing in on ridiculous offers and millions of aspiring homeowners priced out of their dreams to buy their own property.
There are many reasons for this growth, including both natural and unnatural influences. But now, some experts are suggesting that the trend may reverse – that the real estate market could crash, or at the very least, that prices could come down to more reasonable levels.
Is this crash coming? And if so, what can you do to protect yourself from it?
Is a Real Estate Market Crash Coming?
Experts are divided on whether a real estate market crash is coming in the near future. There are some indications that the housing market is currently suffering from overinflated prices, including an unprecedented pricing climb over the last few years and artificially low interest rates.
But there are also some indications that the housing market could continue growing from here, such as the lack of new construction and the continued inventory problems.
Is there truly a real estate market crash coming? No one can say for sure. You’ll need to make your own assessment, in alignment with your own risk tolerance and personal goals, to determine whether you should take evasive action.
Easy Ways to Protect Yourself From a Real Estate Market Crash
Thankfully, if you do suspect that a real estate market crash could happen in the future, there are some easy strategies you can use to protect yourself.
- Consult with the experts. If you have a property manager, or a real estate agent, consult with them directly. Get a feel for whether they suspect a real estate market crash in the future and ask if they have any advice or recommendations for what you should be doing with your money right now. Obviously, you shouldn’t automatically follow any piece of advice you get, even if it comes from a trusted and experienced source. But you can use this in combination with other information to make more informed decisions.
- Analyze your current exposure to the real estate market. Take a moment to analyze your current exposure to the real estate market. Even if you’re a diehard believer in the value of real estate, real estate shouldn’t represent the entirety of your investment portfolio. If you suspect a crash in the near future, an even smaller percentage of your portfolio should be allocated to real estate. But it’s much easier to make these types of decisions if you feel confident about your current holdings.
- Consider selling if you stand to gain significantly. If you think the real estate market is going to crash, and you currently hold properties that have enjoyed significant pricing gains in the last few years, this might be a good time to sell. This is your opportunity to solidify your gains without much of a downside.
- Diversify your holdings in the real estate market. When in doubt, diversify your holdings. Portfolio diversification is one of the most important investment strategies to master, and it’s even more important if you’re worried about economic volatility. Within the real estate market, you can diversify your holdings by buying different types of properties in different areas, or by covering many different types of investments at once by investing in real estate investment trusts (REITs).
- Diversify your holdings outside of the real estate market. It’s also a good idea to diversify your investment portfolio by investing in assets outside of the real estate world. Stocks, bonds, and alternative investments are all excellent choices. If you’re concerned about even more significant forms of economic volatility, you might consider investing in traditional safe havens like gold and silver.
- Practice dollar cost averaging (DCA) with REITs. If you decide to invest in REITs, practice dollar cost averaging. Essentially, this means buying a small, consistent amount of an asset at fixed intervals over time. This allows you to continue growing your wealth without significant risk of buying at extreme high or extreme low periods.
- Be prepared to jump in. A real estate market crash is an excellent buying opportunity. If you suspect one in the future, make sure to save some cash on hand.
Nobody can predict when the next real estate market crash will come, or if we’ll go many years with continued real estate market growth. The only thing we know for sure is that the real estate market is somewhat unpredictable, and even our most seasoned real estate investors exercise caution and long-term planning accordingly when making decisions. No matter how much experience or knowledge you have in this field, you should probably follow their example.
