While the overall economic situation certainly has some analysts screaming about how the sky is falling, others are far more optimistic. There are some early indicators that 2023 can be a great year for investing in real estate. Real estate remains one of the best ways to build wealth over time, so savvy investors are paying close attention to these signs.
Expected Real Estate Contractions
While the real estate market experienced an explosive rate of growth in 2020, thanks in no small part to shifts in demographics brought about by the pandemic and resultant work from home revolution, explosions in growth historically tend to lead to a correction. Housing prices have experienced a meteoric rise since the last major correction in 2008, and some analysts expect to see a similar shift going into the next decade. However, a side effect of corrections is a decrease in price – which itself leaves your investment open to greater returns if you time your purchase correctly. One of the best times to invest in real estate in history was paradoxically during the height of the Great Depression. Additionally, during the 2008 housing crisis, those with the capital to do so bought the homes that people (or banks) were selling at a loss – and made a hefty profit later when the market recovered part way through the 2010s.
Less Competition in the Marketplace
One consequence of a housing market contraction is the fact that it reduces overall competition in the marketplace. Fewer people are willing to take the risk in a tough economic environment, especially during a contraction. The fear is that prices will continue to fall and leave them underwater on the mortgage. This is a justifiable concern, but one that prevents people from taking the risks necessary to secure a greater profit down the line. A savvy investor will take advantage of these anxieties going into 2023.
Risk Mitigation through Historic Precedent
One way to mitigate these risks going into 2023 is to look at current indicators in comparison to historic precedent. The Great Depression and the 2008 financial crisis are both extreme examples, but a savvy investor can also look to other contractions in the market to help guide their decision-making process. For example, in the 1980s, the country saw many defaults in mortgages and foreclosures due to the oil crisis. In response, many lenders began offering more flexible terms, and investors who timed their purchases properly were able to make good money even after the decline in oil prices. Likewise, the dot-com bubble of the late 1990s saw a massive increase in internet usage, which resulted in a boom in tech stocks and real estate investments – until it all came crashing down, that is. In every case, there were economic indicators that pointed to a crash and a correction. A study of history can be what makes 2023 the best year for real estate investment ever.
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