Ever since 2008, “the housing market” has been taboo.
Experts and investors alike were caught reeling in the aftermath of the latest recession, and it’s understandable that they’re hesitant to jump back in.
The fear? Uncertainty. No one can know if buying into property today, or tomorrow, or next week won’t burn you as badly as it did investors over 10 years ago.
Until now. Here’s how to crack the code of the housing market so you can be ahead of the curve and stay in the green.
A famous paper in 2007 claimed that the U.S. housing market works in tandem with the business cycle.
The following year proved that couldn’t be more wrong.
But if we can’t match up the housing market highs and lows against something else, how are we supposed to know whether now is a good time to enter?
‘Experts’ across different fields will give you different answers.
The stock markets. The President. Whether it’s sunny or rainy outside.
None of these predictors are accurate, and if on the off-chance they are, they’re definitely unreliable.
The fear that clouds the housing market following its collapse is thick and all-encompassing.
I would never want you to throw your money at a shot in the dark, then come out empty-handed.
You may be wondering how I plan to counsel you through what seems to be an opaque and terrifying monster, one that changes like the wind and can take your life’s savings in the blink of an eye.
As with any investment, first I advise caution.
Don’t drop all of your money at the foot of the first realtor who gets you a deal.
Do your research, and due diligence, on any property you invest in.
Residential and commercial properties alike should be located in decent areas with responsible tenants and have a thorough property manager.
These things may be a drag on your time at first, but they are paramount to ensuring that your real estate venture makes you the amount of money it should.
An important thing to remember is people watch the housing market for an idea of how the general economy is doing.
From things like sales volumes to home prices, eyes around the world monitor the rise and fall of the U.S. housing market.
What they all seem to be missing, however, is what I’m going to clue you in on.
Sure, indicators about general real estate can help us understand what’s happening, but what no one pays attention to are the small details.
You know the saying as well as I, the devil is in the details. And if you neglect them, they will come back to bite you.
One of the most overlooked and surefire ways to track the health of the housing market is size.
I’m not talking about how many bedrooms and how many baths. The size you should concern yourself with is the square footage of newly-constructed single-family homes.
New home size tends to FALL prior to and during a recession…home buyers tighten their budgets and can afford less of a house.
Then, as size RISES, high-end homebuyers with fewer monetary and credit restraints return to the market in large numbers.
Looking over the data, median floor area dropped 210 square feet prior to and at the start of the 2008 recession.
In the following years, it rose 240 points by 2011.
As of 2019, we are now sitting comfortably at 2,360 square feet.
While that number in of itself isn’t important, what’s important is where it’s staying in relation to the square footage in the years before.
Keeping an eye on data points like these, ESPECIALLY this one, can keep you on track in the housing market.
No matter how you choose to buy into property, focus on the floor area data for the past couple of years.
Having a mind for the data could just save you from the next 2008 housing crisis.