If a real estate market crash is coming… should you sell or be ready to invest?

So Charlotte real estate market has climbed the charts faster than a Michael Jackson album in the 80’s. Great news!

It’s clearly a seller’s market, but are we interpreting this as a false sense of security or is the prosperity here to stay? Are we prepared for a fallout if one were to occur?

Whether you’re an investor that’s hoping for the market to crash or a homeowner that’s terrified of losing the equity in your home, this is a healthy conversation to be having right now.

Blogs and family gatherings are brimming over with real estate market predictions. We’ll throw some color on the conversation, but let’s first make this clear: no one knows what’s going to happen.

Yes, despite what your Uncle Harry says on Facebook, he also doesn’t actually know when (or if) there will be a real estate market crash.

What’s important is that you understand the North Carolina real estate market, think through how scenarios could potentially impact this market and be prepared for whatever is thrown at you.

Let’s start with the market facts

This year has been… confusing.

Unemployment is still scorchingly high;
Most people are staying home… not spending money;
Businesses are continuing to fall into bankruptcy;
All 50 states closed schools to in-person instruction at some point this year.
Growing numbers of Americans don’t trust the idea of a vaccine.
The stock market has largely recovered (at least for the time being).

AND THE CHARLOTTE REAL ESTATE MARKET IS BOOMING

Contrary to what’s iterated on your favorite talk-show’s once/month, the real estate market does NOT crash every 10 years and we’re not “due for correction”, per se (emphasis on “per se”). Sounds smart to say but it’s just a difficult/shallow claim to make.

However, we are in the midst of a fairly unsustainable situation: the economy is being partially propped up by the government, which is not able to happen forever.

“What is the gov’t doing” you ask? Assisting the economy with trillions of dollars in stimulus money and keeping interest rates at a record low (which is like heroin for investors + homeowners).

As it stands, this real estate market appears to be unsustainable.

Remember the phrase, “You’re just taking money from Peter to pay Paul?” The reason our current response is unsustainable is because the government does not HAVE trillions of dollars. In fact, it doesn’t have ANY money.

So, since we don’t have trillions to provide stimulus to all people/businesses/industries, we borrow and print money to keep the country in motion (no opinion here, just stating the facts).

Making matters worse, we’re actively loaning the economy money we do not have for no profit (ie. low interest rates).

This is a longer conversation that’s best had with a professional economist but there’s multiple consequences to printing money and increasing our debt:

Inflation. The more money in circulation, the higher the price of everything becomes (let’s say for this example… the price of a home) and the less our money is worth.
Decay in Foreign Trade and US Investments. The more money we print, the closer we inch toward a devaluing of the US dollar. If the US dollar is deemed to be overvalued or inflated, then the world economy withdraws their US investments and exits their USD cash positions so they don’t lose their money.

This is a much longer conversation for the pros, but for now, we’ll just note that the government cannot continue to print money and provide money to the economy to keep it flying high. Some believe we’re already living atop a house of cards, while others believe we can bury more bodies before anyone starts to care.

To make this topic much more simple, just think about it like this:

An historic pandemic has put the world on hold for months now. Yet the stock market is continuing to climb and real estate has gone up 10%.

At some point, one or more of these things must happen: the gov’t increases interest rates again, government stops artificially holding up the economy (to protect the value of the USD), the US economy just returns back to normal again, and/or the world economy degrades the rating of the USD (sending us in a potential tailspin).

Are you prepared?

Let’s toss out scenarios so you can begin to perform your own internal game theory and then we’ll wrap up with our own take on what’s to come:

What reaction will the real estate market have if the Dow Jones plunges from 28,000 to 10,000 in January? And what if that 10,000 is the new norm for the next 5 years?
What correlation will an increase in interest rates have with property demand?
When the federal eviction + foreclosure moratorium is lifted, will the increase in Charlotte inventory be moderate or massive?
Many private lenders and loan servicing companies are in a tight bind right now. If any of the larger names collapse, will the government response prevent large impacts on the real estate market?

Investors waiting around for another 2008 apocalypse are either going to be very disappointed or made rich. Many homeowners are going to be upside-down on their mortgages or happy they decided to ride the wave.

Regardless of who you are or what you hope will happen, it’s good to have thought through all scenarios.

Our opinion on the North Carolina real estate market

Will 2008 repeat itself? Not exactly; we have much better loans than before. And those loans aren’t misrepresented in financial markets through various mortgage-backed securities.

Our prediction is that markets like Charlotte, North Carolina will begin to see an increase in inventory in the months after the moratorium is lifted (meaning home value drops).

You’re going to see a large wave of foreclosures and short sales. It will not be anything close to 2008, but that increase in inventory and eventual interest rates will produce a quick drop in home prices.

As long as liquid cash buyers are still out there, (which they will be, presuming interest rates aren’t monstrous and the stock market doesn’t entirely crash over the next 12 months) then the real estate market will be just fine.

This doesn’t mean investors can entirely prevent a sharp correction in market, but investors will be much more capable of managing the deal flow compared to the magnitude of what was witnessed in 2008.

However, if inflation takes off, all bets are off and every simulation out there needs to be thrown in the trash.

It’ll be interesting to see what the printing of money could do to inflation or what happens when interest rates are brought back to a sustainable level. Alternatively, if the world allows us to get away with keeping interest rates low for as long as possible, it could be enough to prevent a real tailspin.

Today, everyone’s safe, happy, and real estate markets are skyrocketing while the world is in the midst of a pandemic.

Here in Charlotte NC, inventory is low and home value is up. Only God knows what’ll happen next, but continue the conversation with those around you and speak with your family about what’s the right move for you.