What Happens if the Housing Market Crashes? | BiggerPocket Podcast

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Recession fears are growing, with the stock market fluctuating, housing inventory increasing, and savings dwindling. The pressing question remains: Will the housing market crash? And if it does, what will it mean for investors? Could we witness another 2008-style selloff, or are we facing smaller dips that could present lucrative opportunities?

In this episode, Dave Meyer is joined by two prominent real estate investors, J Scott and James Dainard, to discuss potential market crashes, economic indicators, and strategies for navigating the uncertain landscape of 2024.

Exploring the Possibility of a Housing Market Crash

As we move deeper into 2024, discussions around a potential housing market crash are becoming more prevalent. Rising interest rates, persistent inflation, and a volatile geopolitical environment are fueling fears. Dave kicks off the conversation by addressing these concerns: Are we truly on the brink of a recession? And if so, will the housing market crash?

Economists, pundits, and even social media influencers are sounding alarms about a possible crash, citing various economic indicators. However, despite these fears, the housing market has shown remarkable resilience so far. The critical question is, what would have to happen for a crash to occur, and how likely is it?

Dave invites J Scott and James Dainard to the podcast to share their insights. Both investors have experienced the highs and lows of the real estate market, including the 2008 crash, which was driven by subprime lending and over-leveraging. They explore the differences between the 2008 crisis and today’s market, highlighting that while some similarities exist, the market’s foundation is much stronger now.

Key Differences Between 2008 and 2024

J Scott emphasizes that most recessions throughout history have not led to significant declines in housing prices. The 2008 crisis was unique because it was a housing-driven recession. Today, we don’t see the same level of risky lending or financial instability within the housing market. While home prices are high, they are not necessarily driven by the same unsustainable factors that led to the 2008 crash.

James Dainard points out that although inventory levels are rising, which could signal a shift in the market, a drastic downturn remains unlikely. Instead of panicking, he advises investors to focus on long-term strategies and make decisions based on historical data rather than short-term trends. The housing market is cyclical, and understanding these cycles is crucial for making smart investment choices.

The Role of Fear in Market Dynamics

Both J Scott and James Dainard agree that fear plays a significant role in market behavior. J introduces the concept of a “fear graph,” which illustrates how market fear influences transaction volume. When fear is low, transaction volumes are also low because sellers are not motivated to sell, and buyers are hesitant. Conversely, when fear is high, both buyers and sellers may retreat from the market, causing transaction volume to plummet.

James adds that fear can lead to overcorrections in the market. He advises investors to remain calm, maintain liquidity, and avoid making decisions based on short-term panic. By sticking to a well-thought-out investment strategy, investors can capitalize on opportunities that arise during market corrections.

Preparing for a Market Downturn

The conversation then shifts to practical advice for investors. If the market does experience a downturn, what should you do? Both J Scott and James Dainard stress the importance of sticking to core underwriting principles and maintaining liquidity. By building a strong toolkit that includes reliable financing options, dependable contractors, and a clear strategy, investors can navigate market turbulence with confidence.

James emphasizes the importance of having access to capital during uncertain times. Whether through traditional banks, hard money lenders, or private lenders, securing financing is critical for taking advantage of market opportunities. He also highlights the need for solid relationships with contractors and property managers, as these partnerships are essential for executing investment strategies effectively.

What Would Trigger a Housing Market Crash?

While the fear of a crash is prevalent, both experts agree that the current market conditions are different from those that led to the 2008 crisis. However, they discuss potential triggers that could lead to a significant market correction. These include a sudden spike in unemployment, a severe tightening of credit, or a major geopolitical event that shakes investor confidence.

J Scott argues that while economic data is important, fear is the most critical factor driving market behavior. If fear reaches extreme levels, it could trigger a selloff, regardless of the underlying economic fundamentals. Therefore, understanding and managing fear is crucial for investors looking to navigate the market successfully.

Conclusion

Navigating the real estate market can be challenging, especially in uncertain times. But with the right support and resources, you can turn challenges into opportunities. That’s where BiggerPockets comes in. With over 3 million members, BiggerPockets is more than just a platform—it’s a thriving community where investors at all levels come together to share knowledge, tools, and experiences.

By joining BiggerPockets, you gain access to a wealth of educational resources, cutting-edge tools, and, most importantly, a network of 3+ million real estate investors who are as eager to learn and grow as you are. Whether you’re looking to make your first investment or scale your portfolio, BiggerPockets offers everything you need to succeed—all in one place.

Don’t navigate the market alone. Visit BiggerPockets.com and become part of a community that’s committed to helping you achieve your real estate goals. The knowledge, support, and connections you gain could be the key to your next big success.