It’s a no-brainer to conclude that an economic downturn affects markets across a variety of sectors. A recession has both short- and long-term effects that are a combination of negatives and a possible springboard for recovery. One such mixed bag is the real estate market. Depending on what you’re attempting to accomplish in real estate and what kind of funding you have, fluctuations in real estate demand and prices can greatly impact you.
Commercial Real Estate
A recession can quickly affect commercial real estate. According to Paul Daneshrad, CEO of Beverly Hills-based StarPoint Properties, the commercial real estate market can expect to begin to see the negative effects of an economic downturn in as little as six months. Very naturally, consumers tighten their belts during lean economic times. This means that luxury companies tend to suffer more than businesses that are seen to offer necessities. People pay for their groceries before they’ll go out and buy concert tickets, meaning fewer people will be spending their income on non-necessities. Commercial properties associated with those luxuries end up being affected, too, because a business that can’t pay their rent, mortgage or property taxes soon leaves an empty location behind them.
While there’s no such thing as recession-proof real estate investing, you can insulate your portfolio from the negative effects of an economic slump by practicing a couple of smart strategies. Choose your investments wisely. Are you investing in properties or property management companies which both survived and learned from previous recessions? Are your investments diversified? What do you think will retain its value or recover from being undervalued quickly?
The Housing Market
People still need places to live, even in a recession. Many people tend to view a recession as a time in which home prices will fall, too. That’s not necessarily the case, though. If it is, before people invest in a new home, they should look at a couple of factors. The most important is their source of income. How stable is that income? If your company is at risk, you may not have a job anymore to be able to make those new mortgage payments. Also, be sure that the house you’re buying has a price that reflects the current state of the market. Some sellers don’t drop their prices during a recession. You want to be sure to get the most bang for your buck.
The effects of a recession on the real estate market can vary widely. Pay attention to save yourself some headaches.