Will the Housing Market Crash? Insights for Investors

A market crash in the housing sector would affect the entire economy, reducing consumer spending and negatively impacting investor confidence, leading to economic uncertainty and volatility. Against the landscape of recently soaring home prices and continuing uncertainty, this blog aims to provide insights and analysis for investors, as we examine the potential for a housing market crash. By understanding the underlying factors and trends influencing the market, investors can make informed decisions to navigate through these uncertain times and safeguard their investments. 

  

The Current State of the Housing Market Crash 

Since the pandemic and the historic response from Congress and the Central Bank, the US housing market has experienced a surge in activity and values. This dynamic can be attributed to a combination of factors, including record-low mortgage rates and high demand in conjunction with very low supply, and the continuing trend of lower new construction deliveries than ongoing buyer demand, putting substantial upward pressure on home prices across the country. There are concerns about the sustainability of this rapid growth and the stability of the market moving forward. 

The recent historically rapid interest rate increase induced by the Federal Reserve, juxtaposed with record-low inventory levels, has led to sustained elevation in home prices, yet now those prices are resulting in significant increases in homeownership costs. These increases, along with significant inflation impacting the cost of living for all Americans, makes it challenging for potential buyers to afford homeownership. Moreover, the cost of construction continues to rise, suggesting inventory levels are unlikely to change significantly in the near future. 

Given these circumstances, some analysts question whether the current growth in the housing market is sustainable in the long run. While the current conditions favor sellers, there are early signs of a market correction (some markets are already seeing longer days on market for listed homes in comparison to prior quarters, and there are examples of sale price declines in certain markets) or even the potential of a market crash, depending on the health of the consumer moving forward, along with the stability of the job market. It is important for both homeowners and investors to carefully assess the market and consider alternative options to safeguard against risks. 

  

Factors Affecting the Housing Market 

The US housing market is affected by a range of factors, including the COVID-19 pandemic, affordability, regional-specific circumstances, interest rates, job market, and inflation. 

The pandemic has had a significant impact on the housing market, leading to changes in consumer behavior, including increased demand for housing in suburbs and rural areas. At the same time, the pandemic also created challenges for potential buyers in terms of affordability. 

Regional-specific factors such as zoning laws and land availability also impact the housing market. For example, areas with limited land availability may experience a surge in demand and prices, which can lead to increased risks of a housing bubble. 

Interest rates are another critical factor affecting the housing market. Low-interest rates can lead to increased demand for housing, while high-interest rates can lead to decreased demand, impacting home prices. Economics 101 reminds us that higher demand with the same or declining supply will equal higher prices. 

The job market is also important to consider when assessing the housing market. A weak job market can lead to lower demand for housing, whereas a strong job market can increase demand. While the job market remains generally robust and resilient, some analysts have concerns with where it’s heading due to certain substantial industries being significantly negatively impacted by current economic circumstances. 

Finally, consumers’ ability to stay afloat amidst inflation is another factor that can impact the housing market. Inflation can lead to a rise in prices, including housing prices and other costs of homeownership, making it more difficult for consumers to afford homeownership. 

 

Is a Housing Market Crash Likely? 

While a market crash is a possibility, the more likely outcome in the short term is a market correction. The market has historically shown resilience and economic factors like strong demand, low inventory, low-interest rates (in the broader context of history, by comparison), and a non-linear economy suggest gradual adjustments instead of a severe crash. Understanding the real estate market cycle, which includes expansion, hyper-supply, recession, recovery, etc., can help in predicting future patterns and forming realistic expectations. In summary, a slowdown is more probable than a market crash, with gradual adjustments expected in the housing market. 

 

Multifamily real estate has historically been a stable form of investment.

 

The Reliability of Multifamily Investment 

In these uncertain market conditions, multifamily investment remains a strong option for investors seeking stability and consistent cash flow throughout market cycles. Multifamily properties, such as apartment complexes, have a history of showing resilience even during market downturns, making it an attractive alternative to the unpredictable housing market. Sometimes, the factors that cause tremors in the single-family residential market are driving forces that improve fundamentals within multifamily real estate. For example, when a homebuyer is priced out of the single-family market due to interest rates, rising home values, lack of inventory, inflation, or a host of other factors, that individual typically seeks an apartment to rent for shelter. After all, human beings always need a place to live, no matter the economic circumstance. 

While single-family primary residential housing demand may wane, multifamily property investors can ensure consistent rental income streams while working to reduce vacancy rates. Additionally, the diversification of a multifamily investment portfolio further increases stability and benefits in times of market disruption. 

Multifamily investments, when thoroughly vetted and properly evaluated, have a proven track record for success. Investors who have invested in multifamily properties through a rigorous vetting process have found stable and consistent cash flows while waiting for appreciation. The advantageous real estate sector offers a hedge against market downturns, mitigating any potential losses. 

 

Multifamily Properties: A Stable Alternative to the Uncertain Housing Market 

Determining whether the housing market will crash or continue to grow is a complex endeavor. The current state of the housing market indicates significant price appreciation and increased challenges, meaning it’s an uncertain investment risk. To navigate housing market conditions, investors need the knowledge to make informed decisions. A comprehensive investment strategy in multifamily property can provide a stable investment opportunity by mitigating potential risks while enabling stable income streams. It is crucial to work with experienced and accredited real estate investment professionals, like CF Capital, for optimal results. Multifamily investments offer an attractive alternative to the sometimes erratic (and usually speculative/unpredictable) housing market, instilling confidence and stability for investors for the long haul. 

CF Capital specializes in multifamily property syndication, offering a range of investment opportunities for interested investors. Our platform offers equity investments in top-performing multifamily properties across the Midwest and Southeast, and our team handles all the management, construction and maintenance on your behalf while giving you exposure to the benefits of ownership (ie. Passive income, tax benefits, equity appreciation, etc.) without all the headaches. If you are interested in learning more about multifamily property investment and how it can benefit your investment portfolio, contact CF Capital. 

 

 

How Would a Housing Market Recession Impact Multifamily Property Investing?

Many macroeconomic forecasters are saying that the United States (and many countries throughout the world, for that matter) is currently or is going to be in a recession soon, which has many investors concerned. During a housing market recession, (one angle of the economy that experts are forecasting may be entering recession territory) depending on your timing and the particulars of the strategy, it may not be the ideal time to invest in single-family homes. However, history has proven it can be an ideal time for multifamily property investments if you’re careful and diligent. While the impact of a recession is often felt in almost every aspect of business and investing, multifamily real estate can be a recession-resilient investment vehicle. 

 

Why is Multifamily Property Generally Stable during a Housing Market Recession? 

Although recessions can cause people to stop spending money on unnecessary consumer goods like luxury cars, housing is a must. However, the home-selling inventory is tight, and prices have skyrocketed over the past few years. This leads potential buyers to struggle as they search for an affordable home. These consumers are less likely to purchase a home because of the sub-optimal state of the housing market. Since purchasing a home is out of the picture for most individuals, they are more likely to rent. This means there is an increased demand for rental homes, like multifamily properties. In past recessions, multifamily investments remained stable in the midst of rising prices. Today, in the United States, there is an increase in demand for multifamily apartments, which is one significant reason it’s generally a great time to invest in them. 

 

Multifamily Property Investment: Vehicle to Success 

The economy fluctuates and markets can be unpredictable. But commercial real estate opportunities have built-in protections, for example—current trends of population growth in specific geographical areas. Investing in prime locations for multifamily apartments targets existing or new tenants because they want a safe, comfortable, and affordable place to live. Multifamily property areas need strong fundamentals like good neighborhoods and good job access, and when these criteria are met along with buying well, financing appropriately, and managing prudently, your investment will produce consistent cash flow via strong occupancy and rent growth.  

 

Potential Risks of Multifamily Property Investment 

There is a clear relationship between inflation and rising interest rates. The Federal Reserve has increased interest rates in order to decrease demand across the economy, and therefore prevent further increases in prices. Obviously, this makes borrowing money more expensive. Getting a loan after these interest rates rise can cause your debt burden to increase substantially. Although the purchasing power of money could decrease allowing future loan payments to be “cheaper,” it still can be a risky proposition. 

Also, although the cost of housing might decrease, inflation causes the cost of construction materials and labor to rise. Having to invest more into a renovation could cause your return on investment to decrease. Therefore, having an experienced and resourceful investment partner is key.  With the right team, tactics, and expertise implemented, multifamily property investments can be a dependable investment vehicle for profits and success. 

 

Invest with CF Capital 

During a recession that includes persistent inflation, certain markets across the United States may be affected by rising prices. Those who struggle to purchase a home because of skyrocketing prices and interest rates become more reliant on the multifamily market. This means having a diverse investment portfolio in multiple multifamily assets will help ensure that your cash flow continues to increase for the foreseeable future. Get in touch with our team at CF Capital, to learn about how you can passively invest alongside our team to protect and grow your wealth.