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By Evelyn Long
When buying and investing in real estate, trying to time the market can be tempting. However, due to the unpredictability, this is often hard to do. Multiple factors impact the market’s volatility, including an uncertain economy and housing constraints.
You can easily Google general real estate predictions – and you’ll find many great results from seasoned economic experts. But should real estate investors lean on these predictions to make business decisions? Here are some reasons why they aren’t always helpful.
1. Predictions Don’t Apply to All Markets
This won’t be news to real estate investors, but even the best predictions about market forces can’t be evenly applied to all real estate markets. Industry niches, location and regional policies all play a role in how strongly a larger trend will affect the day-to-day reality of a local real estate investor.
Many investors use previous data to predict future trends. However, past examples show us how these predictions can be too generalized for investors looking at local real estate decisions. Real estate tech platform AppFolio showcases one helpful example from 2014.
In the spring of 2013, 20% of homeowners had negative equity. Experts at the time used year-over-year increases in home prices to predict that many homeowners would be lifted back to positive equity by 2014.
However, by the end of 2014, housing data aggregators told a slightly different story. While home prices did continue to increase, negative equity did not decrease to the same degree. Negative equity remained at 16.9% — an improvement, but not a stellar one.
Plus, we can see how these predictions fared when digging into more specific markets. This slump of negative equity remained higher in Florida and Midwestern states than in other parts of the country, and the same is true for low-value homes versus high-end real estate.
In this example, these predictions led to mixed results. It’s true that equity was starting to balance out thanks to increased home values. But this effect was not as strong as anticipated, and negative equity was a far bigger problem in some states than it was others. It’s a great example of how theory is useful, but understanding the market in your own state is key to applying it wisely.
2. Flashy Articles Can Cause Over-Concern
Some articles sensationalize the falling of the real estate market, letting you know everything is imminently going to come crashing down. While these headlines can get your attention, they aren’t the most useful.
Worst case scenario, some home buyers and investors could see these headlines and feel they need to take drastic measures, like putting down a sizable down payment or selling off a property they weren’t ready to list.
Economists and historians will tell you the market cyclically crashes as part of a historical boom/bust cycle. The extent and severity of these crashes and booms can be affected by government policies, the triggers and consumer behavior, of course, but they happen nonetheless. And could any real estate expert (who didn’t moonlight as an epidemiologist) have accurately predicted the market shifts from a truly once-in-a lifetime event like the COVID-19 pandemic?
So while sensationalist articles about when the market is going to crash will be right eventually, it’s more sensible to prepare your finances for the eventual risk regardless and don’t let that fear hold you back from making well-reasoned bets on an investment project.
3. Unexpected Events Can Impact the Real Estate Market
Many climate researchers connect some of the past few years’ weather events to changes triggered by climate change. The cold snap that rocked Texas in 2021 temporarily impacted the housing market as well, as many homeowners and investors were tasked with repairs from frozen pipes and energy outages.
Similarly, increasing wildfires in California has a negative impact on home values in the most vulnerable regions — although the intense housing supply shortage in the state means buyers are still clamoring to live in fire-prone regions.
Changing weather patterns are complex, and though scientists are releasing helpful research into some climate changes we can expect to see, major natural disasters and weather shocks will always have an element of surprise for real estate investors. Even the best housing predictions can be sidelined by dramatic hurricanes like Harvey and Irma, unseasonal freezes and devastating flooding.
Of course, the weather isn’t the only “act of God” that can affect predictions. The aforementioned COVID-19 pandemic also changed housing market dynamics. It triggered a shortage of supply and rising rental prices, plus a host of unexpected changes both temporary and long-lasting — like migrations of remote workers and widespread concern over evictions and rent delays.
Housing Market Factors You Can Trust
While searching the internet for general predictions isn’t the most effective strategy, here are a few factors you should pay attention to due to their reliability.
1. Mortgage Rates
Mortgage rates are based on the current economy and personal factors.You — or economics journalists you read — can keep tabs on how the Federal Reserve is responding to the economy and managing the money supply. With more reliable data, you can make better investment decisions.
Here are a few mortgage rate predictions for 2022:
- Mortgage rates will rise.
- Home price growth may return to normalcy.
- Expect near-term bidding wars.
- It will still be a tough market for buyers.
- There are still wildcards.
2. The Local Market Conditions
As a real estate investor, it’s more likely than not that you’re developing expertise in the market you operate in. Why? Looking into local trends can help you make better decisions. National trends are important, but they won’t necessarily predict conditions in different areas.
That’s why you want to research current and local real estate trends first. You can find this information online from trusted housing statistics collectors like Realtor.com.. Another good idea is to talk with real estate agents and investors in your region. They are more familiar with the ins and outs of the market, and can have insight you may have missed.
3. Government Policies and Legislation
Government legislation can influence property demand and pricing. For example, tax credits and deductions can boost demand. When the U.S. government passed the First-Time Homebuyer Tax Credit, property sales quickly increased.
So, being informed about emerging government policies can help you determine potential supply changes. To find information about new laws, use online sites like GovInfo.gov and Congress.gov. You can also head to your local library.
Take Real Estate Predictions With a Grain of Salt
Many investors use generalized and national trends to predict the real estate market. Yet, these don’t account for all markets or certain wildcard events. Plus, the pandemic showed us how quickly the economy can change. So, focus on more reliable data from mortgage rates and your local market.
Author
Evelyn Long is the editor-in-chief of Renovated. Her real estate work has been published by the National Association of REALTORS®, Rental Housing Journal, and other online publications.
