Recessions are bad, but is it awful for the real estate market? We will say otherwise! Investing in the real estate market can be an effective strategy to stabilize your investment portfolio.
When the stock market goes up, investors have more capital. And when it goes down, the investor will be looking for other investment opportunities. This is where real estate investments come in handy. Any property investment professionals will agree that it is an excellent option to buy real estate during an economic slowdown.
Here are three good reasons why you should invest in real estate during a recession:
1. Production of stable income:
Real estate investments generate steady income at regular intervals. This is why property investments are such an intriguing opportunity when it comes to investing. Even during a recession, your rental properties will be generating income regularly; therefore, contributing to a consistent and stable income. Real estate investments are ideal because the owners can adjust the rents, making it a hedge against inflation and changing interest rates. Raising rents during lease renewals allow owners to stay in touch with the rising prices associated with inflation.
2. Less sensitive to volatility
The previous recessions saw stock prices fall dramatically. However, the home prices rose during those recession periods or remained fairly stable. During the Great Recession of 2008, the home prices saw a fall. This was before the recession, where home prices over-inflated due to subprime mortgage lending practices. It is also argued that property prices were simply being corrected to their true value. It is also noted that single-family rentals saw positive effects as a sector during the recession.
Real estates have a low correlation with the stock market. So, it becomes a prime candidate for investment during a recession. Stock markets see a heavy dip during a recession. However, the real estate market is slow to move, and therefore, the recession hardly affects the property market. The real estate market isn't really immune to the recession, but it is slow to react compared to other investment options.
3. Better than stocks and bonds:
Due to the slow nature of houses' production, the supply of housing has always remained tight. There needs to be a fundamentally dynamic change to alter the relationship between the housing supply and demand.
It's even harder to ascertain the supply shortages being reduced by a recession in a way that modified the prices. A spike in unemployment could negatively impact demand, but the Federal Reserve System is nearly bound to keep rates at near-record lows to balance the economy. The present rate on a 30-year fixed mortgage is at 4.83 percent, according to Bankrate. For perspective, rates reached highs of 18.5 percent in 1981, so even an increase above 5 percent would be historically quite low.
Yes, it is a good decision to invest in the real estate market during a recession. Speak with us PRI, and we can help you out with property investment professionals to set you up for years of success, even in difficult times like recessions.