If you're considering purchasing a property soon, how much should you worry about a housing market crash?
Of course, there's always a possibility of property prices falling -- at least in the short term. But with costs driven up rapidly in recent years by low mortgage rates, reduced supply, and high demand, the chance the market is in a bubble may be greater than under normal circumstances. That's especially true with inflation at record highs, the Federal Reserve raising interest rates, and challenges both domestically and overseas increasing the risk of recession.
The big question is, how much of a concern should this be? The answer may surprise you.
Image source: Getty Images.
You may not need to worry much about a real estate market crash under these circumstances
While no one wants to invest in real estate only to see the value of their property fall quickly, the reality is that if you're buying and a few key factors apply to your situation, this likely doesn't need to be a huge concern. Those factors include:
- You're financially ready to take on the costs of ownership.
- You're planning to own the property for a long time.
- You can qualify for an affordable mortgage loan and won't see payments increase beyond your means.
These issues matter more than whether you time your real estate purchase perfectly. That's because if you're in a good financial position and you intend to hold on to your property for a long time, you should eventually see the price rebound and benefit from appreciation -- even if it takes a long time for that to happen.
In 2008, for example, the country experienced one of the worst real estate market crashes in its history. But studies show prices had returned to pre-recession levels by 2018 in most parts of the country. Even in the hardest-hit places, full recovery was expected by 2025. And this was before the rapid increase in housing costs over the past few years.
In other words, even if you bought a property at the worst possible time, if you held it for a little over a decade, chances are good that your investment would have recovered and your property would be worth more than you paid for it.
The key question is your motivation and financial readiness
When it comes to real estate, as it is with many other types of investments, a focus on the long term reduces the risk of buying assets at an inopportune time.
If you're purchasing a home or investment property with the goal of flipping it for a quick profit, you're likely to be hit hard if the market crashes and you face an outsized risk of loss if you don't time your purchase perfectly. Likewise, if you're stretching to buy or taking out a mortgage that you must refinance within a few years to avoid payments becoming too expensive, any financial problems in your life or within the economy as a whole could be catastrophic.
But if you do your research, buy a property you believe has solid long-term potential, and are confident you can easily make payments through good times and bad, you're likely to end up benefiting from your purchase, given the fact that the real estate market has always seen rising prices when the investing timeline is long enough.
