Why Are Housing Prices Not Falling Yet?
Lots of people are watching and observing the market waiting for housing prices to go down. But they just continue to go up and up. Today, we’re going to talk about what’s happening with the housing prices because everyone keeps saying that the prices are going to fall, but when exactly? We are going to tell you what is happening.
Let’s analyze what is truly causing the prices of the houses to go up. It’s just a very simple answer. It’s the stimulus that we’re getting. That’s because money is cheap. It’s just as simple as that. Everyone is getting their cut on the stimulus, whereas the individuals, we’re getting access to unemployment money, and we’re getting access to stimulus money.
As a business, you get access to SBA loans that have very low-interest rates. Everyone is getting a share of the money that ‘s been circulated and has been approved by the federal reserve.
There are two types of consumers:
- The ones on the Individual side
- The ones on the Business side
When you get money, what do you want to do with it? You spend it, or, at least, that’s what the Fed wants you to do. The purpose of having such a big stimulus package is to incentivize you as a consumer to spend the money so that way, the economy can continue to circulate because otherwise, we’re going to hit a big recession, if not a depression.
We don’t want that to happen. We want people to feel like everything is business as normal, that they have money. That’s the intent of all of this. As a person, as a consumer, you have two choices in terms of spending your money.
- One is just by simply going shopping: Buy some shoes, a nice wallet, or clothes.
- There’s the second type of consumer: The one who is looking to invest their money.
Regardless of whether you get only $600 in unemployment, or now, $400, or even $1,200, the point is that you’re getting money that you can use or add to whatever you have saved so far to make that investment that you’ve been looking forward to making. Call it the stock market, or you can call it the real estate market.
Housing Prices: Business Owners
If you’re a business owner, you also get to choose to do the same thing. Ideally, you should use that money to reinvest it in your business, but some people are using that money to just simply invest because you want to make your business grow, you want to make your money’s worth it.
What’s happening with that? That is because money is so cheap and everyone is looking to invest, that’s driving prices up. Why? Because the supply stays the same.
There’s only a certain number of stocks in the market. They haven’t issued any new stocks. The company has not announced any major stock releases recently so that people could buy, and because of that, that means that the supply of stocks is relatively slow, which means the prices have to go up so that it remains competitive.
Otherwise, everyone is going to get their hands on it, and you won’t have any stocks to buy anymore.
Some social events throughout history can significantly impact financial markets
Same thing happens with real estate. Constructions are not happening nowadays because of the virus. If you live in a state where construction has resumed, it has happened in a very limited capacity. Why? Because you have to respect social distance and protect the workers.
You cannot have 30 workers under one building because you cannot place them right next to each other. Now you have to maintain a certain level of distance, so you cannot fit as many people into the construction site as you did before. Instead of having 30 people, now you can have 10 people.
Construction is happening, but it’s happening at a very, very slow pace. That only means that consumers are going to have to wait longer in order to get their hands on a property.
Covid-19 and housing prices
Families who were getting their house fixed up so that way they can just sell it, nobody wants to list their house on the market anymore because they don’t want germs being spread out.
They don’t want people coming into their homes, especially if they have children, because they don’t know. What if the person had the virus and doesn’t know it? Some people have the virus but they don’t show any signs of being sick with it. That only reduces the supply available and people have no other choice, but to just pay a premium, that’s how you remain competitive.
Real estate is very localized. It’s not like a national standard thing. It’s very local. For example: In New York, the housing prices have been dropping and the same has happened with rent.
Landlords have to make concessions now to be able to rent it because it’s not so easy to rent anymore. More and more people want to leave the city.
They don’t want to live in a very dense area where they have to share the common halls, or they have to share the laundry room, or even the parking lot because there’s a lot of people nearby. You don’t know anything about the person standing next to you. They could be sick. The point is, you want to reduce that exposure.
As a result, a lot of people are migrating to Connecticut from New York. Then in Connecticut, the housing prices are actually going up, the same thing with the rent. Those who can afford to move to Connecticut, they’re looking to buy bigger houses. Why? Because most and most families are starting to work from home, and they need more space.
Now, you have to deal with the husband, and the wife all under the same roof, and children taking classes remotely. That’s just a recipe for disaster. There’s a lot of noise, parents cannot truly work because the kids demand attention and you need to help them with the homework and to log into the classes every single day.
2008 Financial Crisis
You must be very attentive to the way in which the price of houses moves
We’re having a repeat of 2008, but in a very different way. A lot of people remember 2008 because the houses were in a bubble, and they were at the very highest point, and all of a sudden, the news hit, and all the housing prices were going down. People were defaulting on their mortgages because the mortgage was worth more than the house itself.
What we want to do is to wait for other people to continue to drive prices up and buy with their emotions all the way up until it hits all the way down. Now, remember, when you buy houses, when you invest in real estate, you invest with numbers.
You make your decisions solely based on numbers. You don’t make your decisions based on your emotion, based on how pretty the house is. Of course, the house needs to be in livable condition, but you don’t let those things guide or persuade your decision-making process.
Most people who are looking to migrate to Connecticut because they don’t want to miss out on the beautiful house, the big house, they’re the ones who are buying with their emotions.
They’re buying with fears, and they want to take advantage of the low-interest rate, but they’re overpaying for the prices, and because the supply is so low, the housing prices continue to go up, and people start getting themselves into a bidding war because whoever wants to house the most is the one who’s going to be willing to pay the most for that property.
When exactly are the housing prices going to fall?
The truth is nobody knows. Nobody knows but all you have left to do is to continue to monitor the market. This is all we do as real estate investors. We monitor it. You compare the housing prices because that’s the only way and how you will know that things are changing.
If you’re just checking into the market for the first time and invest, that’s not really called an investment. That’s just simply called gambling.
You have to be able to know what you’re walking yourself into, and the best way to do it is to educate yourself.
If you want to or looking to accelerate your learning process, feel free to sign up to our free webinar. In this webinar, we will teach you how to invest in real estate the right way, even without any capital.
It’s free of charge. All you gotta do is just to sign up and make sure you have sufficient time available to sit down and take notes and learn to invest the right way.
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