What Is the Housing Market Cycle?

The real estate cycle is the natural process of growing, expanding, and receding in the real estate market. It’s generally divided into four stages: recovery, expansion, hyper-supply, and recession. Each cycle phase is unique and impacts the real estate market differently, like price, vacancies, and inventory.

People generally estimate that the real estate market cycle takes an average of between 10-18 years. However, this can change pretty drastically depending on some of the factors that affect the market. Many different things affect the natural flow of real estate cycles, like the following:

• Interest rates
• Economic health
• Demographics
• Government policies
• Real estate development
• Business growth
• Employment rates

Use this real estate cycle chart to help identify the state of the market (we’ll use this chart throughout the article to show the various stages):

Why Investors Need to Understand the Cycle

If you want to be a successful real estate investor, you need to understand the market beyond a real estate cycle chart. Investing is a long-term strategy, and it’s easy to make poor decisions if you don’t understand how the market naturally ebbs and flows. Understanding the real estate market cycles will help you to do the following:

• Know when the optimal times are to buy and sell
• Adjust your pricing strategies for buying and selling based on the state of the market, demand, and pricing changes
• Generate a higher profit because you have a long-term perspective
• Avoid poor investments by making choices before the market makes a downturn

Understanding the housing market cycle is essential to make profitable investments. Learn how to plan even more effectively in our guide to making a real estate investment business plan.

Stages of the Housing Market Cycle

At any point, many factors affect the real estate market. However, every change in the market can fit into one of four stages of the real estate cycle: recovery, expansion, hypersupply, and recession.

1. Recovery

The first part of the real estate cycle is right after a recession when the market is trying to recover. At the beginning of the recovery phase, people still feel the effects of the recession. There is typically an excess supply of properties that doesn’t match a decline in demand. This phenomenon creates a drop in the prices of rent and properties.

What investors should do during recovery:

• Purchase below-market properties (best to do in the early stages of recovery)
• Sell renovated properties that were purchased during a recession
• Negotiate property prices to get undervalued properties or the best value for your flipped homes

2. Expansion

As recovery continues, some call parts of this phase “the honeymoon.” This is when the general economy is growing, employment rates are starting to improve, and demand for real estate is increasing. You’ll see signs of the expansion phase when properties sell more quickly, rent prices are starting to increase, and there is a higher competition for bank foreclosures. This is the part of the real estate cycle when supply and demand are the most balanced.

What investors should do during expansion:

• Research growing areas to invest in locations that are in high demand
• Renovate or develop properties (high demand justifies the cost)

3. Hypersupply

The next part of the housing market cycle is when the pendulum swings a little too far in the opposite direction, and now the supply of real estate exceeds the demand for it. This can be caused by overbuilding during the expansion phase. Watch for this part of the real estate market cycle by looking for low unemployment rates, quickly selling properties, and increases in property and rent prices.

It’s common for some investors to panic when they find themselves in this spot on the housing market cycle graph because they know a recession is coming. You can always liquidate your assets, but it’s often a wise strategy to hold properties and generate short-term cash flow. However, it’s smart to prepare for an upcoming recession by adjusting your pricing strategy.

What investors should do during hypersupply:

• Hold properties and let them appreciate
• Focus on generating short-term cash flow
• Prepare for upcoming recession

4. Recession

Of all the real estate market cycles, the recession stage is the most daunting for investors. At this point, there is an overabundance of inventory that surpasses demand. This means there are more vacancies, and prices start to fall again. During this stage, job growth slows down, leaving fewer buyers and renters to fill your rentals. At the same time, home values increase more quickly. Even though recessions are typically challenging for rental property owners, slow periods of the economy are the best time to invest in real estate.

What investors should do during a recession:

• Buy distressed, undervalued properties with high long-term potential
• Look for distressed properties or those in foreclosure
• Develop a long-term rental or flip strategy for investments

Frequently Asked Questions (FAQs)

What are the four cycles of real estate?

How long is the housing market cycle?

What phase of the real estate cycle are we in in 2024?

Bringing It All Together

Understanding the real estate market cycle can be overwhelming at first, but it’s an extremely important concept to master for aspiring real estate investors. Make sure to understand the ins and outs of each part of the cycle and learn how to recognize shifts in the housing market cycle to make the best decisions for your business.

The post How Smart Investors Decipher & Respond to Real Estate Market Cycles appeared first on The Close.

1. Expired Listing Prospecting Letter

Expired listings can be an excellent source of real estate leads, as these homeowners already want to sell. Most often, the main reason a home doesn’t sell is pricing. The owners might not have listened to their listing agent when they recommended a lower price, or—even better for you—maybe their listing agent wasn’t confident enough to price it correctly in the first place. 

The trick to writing real estate letters to potential sellers that persuade these owners to relist their homes is simple. Empathize with their problem and offer a fresh solution to fix it. In this letter, the perspective is shifted away from blame and focuses on a simple, tech-savvy solution:

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Dear {first name}:

As a Realtor of {#} years in the {your farm area} community, I was surprised to see that your home did not sell. It has {a unique feature of the home} and {a desirable feature of the home} that many {your farm area} buyers who call our office are looking for. In fact, I sold {local comp you sold} to a couple relocating from {city} recently for well above asking. They were in love with the neighborhood, and after my presentation, they also fell in love with the home.

So why did this home sell over asking while yours didn’t? Simple. Most buyers have a hard time imagining themselves living in any new home. Sometimes, we need to nudge them by showing them exactly what a home could look like once renovated.

This is actually a lot easier and more affordable than it sounds. Using state-of-the-art virtual staging tools, my team creates realistic renderings of what your home would look like renovated and decorated to house hunters’ tastes. When buyers see the renderings, their faces light up, and they see the potential in your home.

I would love 10 minutes to show you some of the creative virtual staging and renderings I’ve used to sell other homes in your neighborhood to see if they might work to sell your house for over asking, too.

Text me at the number below to set up a time for a quick, no-pressure Zoom call. I think you’ll be pleasantly surprised with the results.

Sincerely,
{your name}
{your cell phone number}
{your website}

2. FSBO Letter

Inevitably, you’ll meet homeowners who say they want to sell on their own. Savvy agents like you understand that these sellers simply want to save money. They don’t truly fathom how much work goes into marketing a home. Your approach to FSBO owners must demonstrate the value you bring to a real estate transaction. Use one of our best FSBO scripts to master the conversation. Offering free, actionable, hard-won advice on marketing their homes is an excellent way to persuade an FSBO that you are there to help, not sell. And it’s a great way to get a foot in the door and build trust. Here’s a good example:

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Dear {first name},

I wanted to congratulate you on your success so far in listing your home on your own. Marketing homes is not easy, and I love how you {something they’re doing right with their listing, such as persuasive copy or nice pictures}. That’s something that some agents skimp on, so kudos for doing a great job with it.

That said, your {something they are doing poorly} can use some work, and I wanted to offer some quick and free advice on improving it.

First, you need to {actionable way to improve}, which you can do by {specific way to do it}. If you decide to take my advice, I would love to know how it works out.

Of course, as you may be discovering, selling a home is a lot of work, and the trial and error involved can mean a slower sale or even selling for a lower price. I can help you save time and money on that trial and error, and since I have {#} years of experience selling homes in {your farm area}, I’m confident that the price of my commission will be covered by the higher price I can get for your home.

If you’d like to discuss how I can sell your home faster and for a better price, please text me on my cell below.

Sincerely,
{your name}
{your cell phone number}
{your website}

3. FRBO Market Research Letter

Not all sellers are created equal. You’ll eventually encounter rental property owners using one or more real estate investment strategies. They look at their property differently than someone who lives in their home; they want to maximize the money they can make from their real estate investment. When you talk with one of these investors, you’ll want to get straight to the point and speak their language. That means telling them immediately that you can get them a better return on their investment than they are now.

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Dear {landlord’s name},

I just came across your rental listing at {address of FRBO} and wanted to let you know that you could easily double or triple your investment tomorrow by putting your property on the market.

Even in this market, my research shows that {type of property} homes like yours have increased more than {percentage} in the last five years. However, trends indicate a slowdown on the horizon due to new developments and regulations that may kill investment values.

If you have a few minutes for a coffee sometime this week, I’d love to show you my research in detail. You might be surprised at what your {type of property} is worth in today’s market. Or, if you prefer, text me at my cell phone number below and I can send you a free PDF with my analysis.

Best regards,
{your name}
{your cell phone number}
{your website}

4. Absentee Owner Letter

The struggle for property owners who don’t live in the area is real. It’s not uncommon for a homeowner to move before they can sell or inherit a property in another area they don’t live in. These unexpected landlords practically have to hire someone to manage their rental on their behalf. But you can offer a solution to their long-distance rental woes.

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Dear {landlord’s name},

As you undoubtedly know, owning property that is far away from you can be challenging. Problems tend to become magnified by distance and often lead to anxiety and frustration.

Despite current market conditions, my brokerage is selling property at a brisk pace. I believe that we can sell your {type of home} in {your market community} at an attractive price.

In fact, we would be happy to prepare a comparative market analysis to show you what you might expect to receive from a sale in the present market without obligation to you. Text or call me at my cell phone below if you would like more information about what we can do for you.

Sincerely,
{your name}
{your cell phone number}
{your website}

5. New Agent Announcement Letter

There are so many different real estate prospecting approaches, especially when you’re just starting out. Announcing your new career as a real estate agent to friends and family on Facebook is a great way to build your sphere of influence. The problem is that your post is too easy to ignore. On the other hand, a heartfelt real estate farming letter isn’t. Most people in your sphere will be impressed that you actually took the time and effort to send a letter. That alone makes it worth it.

Real estate coach Sean Moudry’s sphere letter below is an excellent example of a real estate farming letter. Hit your strengths as a new agent, and remind them they have you as an insider in the real estate industry.

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Dear {name},

If you’re anything like me, chances are you’re only reading this letter out of sheer curiosity. After all, why would someone go through the trouble of writing a letter in {year}? What could possibly be so important that Facebook, Instagram, email, texting, and LinkedIn just aren’t good enough?

Why did I go the extra mile here? Simple. Big changes lead to big opportunities. Let’s start with the changes: Last month, after {years} in {previous industry}, I proudly joined {your brokerage or team}, one of the most respected and talented {brokerages or teams} in {your farm area}.

Now for the opportunities. Here are some of the potential benefits of having a personal real estate insider in {your farm area} that you might not have thought of:

Integrity: I will answer any real estate questions you have with complete transparency and honesty.

Access: I can hunt down information on any property you’re curious about whenever you need it.

Accountability: Since we are personally connected, I have a financial and social obligation to work harder for you than any other agent in {your farm area}. But I don’t want you to hire me just because we are personally connected. I plan to earn your business.

If you have a few minutes this week, I would love to buy you a cup of coffee at {local coffee shop} to talk about the market and how I can help you achieve your real estate goals this quarter, this year, and for many years to come.

Sincerely,
{your name}
{your cell phone number}
{your website}

6. Referral Request

Referrals are a real estate agent’s honeypot and typically provide the largest pool of prospects they can tap into. When you reach out to your sphere of influence, you connect with people who already know, like and trust you, so you don’t have to spend time convincing them how awesome you are. Reach out directly and ask them if they know anyone who might need your services. It’s also a great way to remind them you’re their friendly neighborhood real estate pro.

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Hi {name},

I hope this letter finds you well. Can you believe how fast time is flying by? It feels like just yesterday we {shared memory or event, like closing on their home}.

I’ve been up to some exciting things in the real estate world, helping people find their dream homes and make wise real estate investments. It got me thinking—who do I know who might be looking to make a move or invest in property? And, of course, you came to mind.

I’m not asking you to pack up and move (unless you secretly want to), but if you happen to know anyone—friends, family, co-workers, or even your neighbor—who’s thinking about buying or selling real estate, I’d be super grateful for the heads up.

Word of mouth is powerful in this business, and I know that if you recommend someone, they must be amazing. If there’s anyone you think could benefit from my real estate prowess, just drop me a line. A simple “Hey, my friend might be interested—I’ll connect you guys!” would be pure gold.

And, of course, if you ever want to chat about real estate, life, or anything in between, my door (or phone) is always open. Catching up would be fantastic. I’ll buy the coffee!

Thanks for being awesome, {friend’s name}. Looking forward to hearing from you soon!

Warm regards,

{your name}
{your cell number}
{your website}

7. Local Business Prospecting Letter

Entrepreneurs and businesses can become great allies in your community. Show entrepreneurs that you’re a valuable asset by aligning your services with their business objectives. Engage with genuine curiosity about their businesses and a willingness to provide meaningful support. Focus on building long-term symbiotic relationships rather than seeking transactional opportunities.

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Hey {business owner’s name},

I just wanted to let you know that my team and I are thoroughly impressed with how your company has grown and become such an essential fixture in {your community}. Building a brand that people actually care about isn’t easy, and {your farm area} wouldn’t be as fun without {their business name}.

That’s why I’m reaching out today. My brand has been working on creating engaging experiences for prospective homeowners at open houses. I am averaging {approximate number of attendees} people per open house.

All of them are interested in buying a home in {your farm}, and a warm welcome with your {their product or service} would be an excellent way to introduce them to the community. Adding your services would be an excellent way to welcome our open house guests and allow you to show off your {product they sell}.

What day this week works for a quick call—or better yet, a meeting over coffee at {local coffee house}?

Best regards,
{your name}
{your title}
{your cell phone number}
{your social media and website links}

8. Divorce Prospecting Letter

Since transactions after a divorce are often stressful, they may not be the best choice for newer agents. The sellers in divorce transactions will register high on the emotional scale and will take a lot of patience and grace to complete. The truth is they need someone to get them through the process, but the key players in this situation will require a delicate, empathetic, diplomatic approach. If you’re an experienced agent ready for the challenge, here is a letter you can use to get divorce leads.

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Dear {name},

Buying or selling a home in {your local market} is hard. Add in the stress and confusion of a divorce, and it becomes 10 times harder. Hire a real estate agent who has never worked with clients who are getting divorced before, and it becomes 20 times harder. The good news is that it doesn’t have to be.

Throughout my {#} years working as an agent in {your farm area}, I have helped many clients smoothly navigate the tricky process of buying and selling homes after a divorce. Many of them have said that after their families, friends, and attorneys, they valued my help most of all. I’ve included {#} testimonials from former clients at the end of this letter.

My {#} years of experience can help de-stress buying or selling after a divorce. Here are a few things I’ve learned over the years to help close real estate transactions after a divorce with as little stress as possible:

• Experience matters: New agents are often so hungry to close a deal that they fail to guide you through the process smoothly. They usually end up adding stress when they should be helping to reduce it. With {#} years in real estate, I have the experience you need.
• Integrity matters: Since you likely need to buy or sell quickly, many agents will rush you through the process—again, adding stress when they should be helping to reduce it.
• Skills and empathy matter: While many agents just offer empathy, I offer something far more valuable: the marketing, sales, and negotiation skills to de-stress your transaction as much as humanly possible.

If you would like to talk over your options for buying and selling real estate or just need some quick advice, you can text me 24/7 at {your cell phone number}.

Sincerely,
{your name and title}
{your cell phone number}
{your website}
{testimonials from former divorce clients}

9. Probate Prospecting Letter

Like divorce transactions, probate listings come with so much stress and red tape that we generally don’t recommend them for new agents. While it’s true that probate listings tend to sell quickly, dealing with grieving families and lawyers takes patience and a few years of experience. If you’ve done your homework and feel ready to take on the challenge, here is a letter offering empathy and showing off your agent skills.

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Dear Mr./Mrs./Ms. {last name},

I am writing to you to offer my condolences for your recent loss. I did not know {decedent’s name} personally, but having been through this myself, I know how surreal and stressful it can be to navigate the labyrinth of lawyers, paperwork, and red tape accompanying the grieving process.

I know it’s a small consolation, but I would like to help you alleviate some or all of that stress so you can focus on remembering {decedent’s name}. I have been an active Realtor in {your farm area} for {# } years. As you can see from the testimonials attached to this letter, I have extensive experience selling homes quickly, and without the stress of hard-sell negotiating with deal-hungry investors or endless open houses that most Realtors use to find clients for themselves rather than to sell your home.

My promise to you is that I will never waste your time, and will only act in your best interests—always. If you would like to talk about next steps, please don’t hesitate to send me a text or call me on my cell below.

Sincerely,
{your name and title}
{your cell phone number}
{your website}
{testimonials from former probate clients}

10. Preforeclosure Prospecting Letter

Preforeclosure letters are not easy to write. But in a challenging situation, your letter and services just might help someone out of a tricky financial crisis when they most need it. The key to converting these leads is empathizing with their situation and remaining optimistic and realistic. Here is a sample letter you can use:

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Dear {first name},

I know you’re probably tired of getting letters in the mail about your home, but I am writing to offer you something most are not: hope. I won’t insult you and pretend this situation is easy, or that I have the perfect solution to save your home. Instead, I am offering two simple things: empathy and options.

Empathy: I know this might not sound sincere from someone you don’t know yet, but I have helped many people in your exact situation get through this process with the least amount of stress possible. I will be your advocate, both legally and as a person with sensitivity and experience.

Options: There are many ways to get through this process quickly and with the least amount of pain. A short sale—which will allow you to avoid foreclosure and rebuild your credit faster—is an option that many of my former clients chose as the best solution. I have extensive experience with the short-sale process and can be a staunch advocate for your best interests. But I’m happy to walk you through other choices if you’re interested.

If you have five minutes and an open mind, please call or text me at my cell number below to chat. I know it might not seem like it now, but this too shall pass. Hopefully, I can make it easier for you.

Sincerely,
{your name and title}
{your cell phone number}
{your website}

11. Open House Follow-up Prospecting Letter

Obviously, you want to circle prospect before an open house. But if you want to make a more personal connection with your open house guests, a quick letter—or better yet, a handwritten card—will have an excellent return on investment. Just remember to keep it light, short, and friendly. Here is an example of a real estate letter you can use for inspiration:

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Dear {first name},

I just wanted to send you a quick note to personally thank you for coming to my open house at {open house address}. It is always a pleasure to meet new people in {your farm area}. I am passionate about serving {your farm area} and I genuinely believe that even small connections at events like my open house build stronger communities. Chocolate chip cookies certainly help!

If you ever need advice about this crazy real estate market or just want to grab a coffee sometime, please don’t hesitate to call or text me at my cell number below.

Best wishes,
{your name and title}
{your cell phone number}
{your website}

Prospecting Letter Templates

Like what you saw in this article? Download our PDF of 24 letter templates, including the 11 I share in this article, and get ready to boost your lead gen.

7 Tips to Write Real Estate Prospecting Letters

As you can tell from the wide variety of prospecting letter samples above, there are as many ways to write a prospecting letter as there are agents in your area. Drawing from my years of experience in copywriting, I spent years warming up leads and reaching out to prospects with real estate letters. To help you craft your unique prospecting letter templates, I’ve compiled this list of best practices designed to improve your response rate.

Copywriting is all about being persuasive and encouraging your readers to take action. The right words can make the difference between a letter that generates leads and one that ends up in the trash. Keep these key points in mind when crafting your prospecting letters:

Tip 1. Make it personal

Personalize your letter. Use the recipient’s name and adopt a friendly tone. Make your greeting feel warm, like you’re writing a letter to a friend.

Example: Hi, John!

Tip 2. Grab attention

Try using an attention-grabbing lede in your opening paragraph. The goal is to draw your readers in quickly before they toss your letter out with the recycling. When you use a strong hook to get your reader’s attention early in your writing, you’re more likely to draw them into your story and keep them interested.

Tip 3. Make a connection

Once your reader is hooked and interested in what you have to say, it’s time to make a meaningful connection. You do that by pointing out a challenge your reader is most likely facing and empathizing with their situation. Let them know you understand where they are and how they feel.

Example: I understand how challenging the current market is and how it must be weighing on your decision.

Tip 4. Give your unique value proposition

Now that you’ve made a meaningful connection with your prospect, it’s time to set yourself apart from your competitors. Share what you do that makes you a better choice than any other agent. What do you provide to your clients that other agents don’t? 

Example: When you work with me, you’ll get an empathetic ear, a caring touch, my years of probate expertise, and the professionalism to see your transaction through smoothly.

Tip 5. Provide the solution

You’ve introduced yourself, made a meaningful connection, showed empathy for their current situation, and shared what sets you apart from the competition. Now, it’s time to present the solution to the prospect’s problem. In case you’re wondering what the solution is, it’s hiring you. 

Example: Let me simplify your home sale, ensuring you get the highest price for your home in the least amount of time.

Tip 6. Include a call to action

Now that you’ve convinced them that you are the solution to their real estate needs, tell them what you want them to do next. This doesn’t have to be sleazy or pushy. Make it simple. Just give them some direction on how to get in touch with you so they can hire you.

Example: Send me a text or call me at the number below to get things started.

7. Finish like a champ

Be sure to thank them for reading your letter and considering you for their real estate needs. It’s courteous, and you want to end on a positive note. Also, don’t forget to include all of your contact information under your signature. You might want to include your website (especially if they can find testimonials there) if they want to learn more about you.

Example: Thank you for taking the time to read this and for allowing me to present my value. I hope you’ll consider working with me to get your home sold.

FAQs

What are real estate prospecting letters?

Do real estate prospecting letters work?

Why are real estate prospecting letters effective?

Over to You

Have a unique real estate prospecting letter that converts well for you? Let us know about it in the comment section.

The post The 11 Best Real Estate Prospecting Letter Templates appeared first on The Close.

An economic downturn provides many opportunities that are nearly impossible for the average investor to take advantage of in a good economy. Despite this, many agents have a hard time persuading would-be investors that a downturn is the right time to jump into the real estate market and start investing.

To help you educate your clients, I’m going to share my most persuasive reasons why your client should start investing in real estate right now. But first, let’s get a handle on the basics.

Is Right Now Really a Good Time to Invest in Real Estate?

It’s a fair question! I’ll get into the specific reasons below, but let’s take a minute to orient ourselves.

A Look at the Current Market in 2023 

The market is anything other than typical right now. According to the National Association of Realtors’ latest existing-home sales data, sales are down 23.2% and prices are down 1.7% from this time last year. The association’s chief economist characterized it as “bouncing back and forth,” with interest rates, low inventory, and job gains contributing to “an environment of push-pull housing demand.”

Inventory is low and prices are high, but that situation is not going to remain true forever. Kate Evans recently did a deep dive into why the market is so hard for first-time buyers to get into, but she also noted that there are positive signs around inventory and interest rates.  

Benefits of Investing in Real Estate Right Now 

Again, we’ll dig into this in more detail below, but certain submarkets offer more value than others, which is why I see right now as a good time to invest in real estate. 

But also, for certain investors, I do think time is of the essence. I worry in particular about younger buyers and investors who might miss out on one of the last opportunities in their lifetimes where they will be able to buy undervalued real estate before the market becomes unaffordable again. So I hope I can help you and your clients understand how to leverage today’s investment landscape so you can pounce on more opportunities as they arise. 

OK, now let’s dig into the reasons I see right now as a good time to invest in real estate. 

Reason #1: Recessions Create More Opportunities to Invest

I know what you’re thinking; “There isn’t enough inventory and house prices are too high. How am I going to find properties for investors to buy?” Well, the good news is that inventory is going to increase.

Many people, even real estate agents, don’t realize that there are actually three real estate submarkets happening in the residential space at the same time. These submarkets occur simultaneously in every market, everywhere and all the time … without exception! 

Retail Market

I’m not talking about your local corner store here. This retail market is reflective of a sale between a seller who is not in financial or personal distress and a buyer who is not being influenced to buy due to their circumstances. It’s the typical real estate transaction—what agents refer to as “market value.” 

Due to the massively low housing inventory that isn’t likely to change in the near future, housing prices in the retail market are not expected to substantially change, up or down, even if we see a full recession. This is because most homeowners have a low interest rate and an affordable payment, and most homebuyers don’t have a lot of economic or social pressures to buy. Therefore, we’re most likely to see price movement in the other two submarkets.

Motivated Sellers

The motivated seller category is the submarket where you will find homeowners who are facing financial distresses like bankruptcy, foreclosure, and job loss or relocation. They may also be facing a personally distressing situation such as divorce, health issues, or even a death in the family. 

Motivated sellers don’t have the luxury of time, like the sellers in the retail market do. Their unique situation requires them to resolve their circumstances within a defined time frame. Some as little as a few days!

While these situations also occur in a strong economy, the circumstances of super-low inventory and high buyer demand mean that sales involving motivated sellers transact at nearly the same price as a retail sale. This is because the entire market is in a phase that we call compression. 

However, during a slower market, the opposite occurs: The price gap between the retail and motivated seller submarkets increases since the motivated sellers will have to price the property aggressively to attract more offers. They will also lean toward accepting a lower-priced offer with fewer contingencies (think cash and as-is) because they must resolve their situation quickly. This causes the market price gap to further increase, what’s known as a market expansion.

Distressed Properties

The distressed property submarket refers to homes that cannot be sold to a traditional buyer. This is commonly due to the condition of the property or potential title and legal issues. 

Distressed properties include homes that have been neglected for years, have fire or flood damage, and bank-owned homes with no plumbing (because the copper was stolen). Like the motivated seller market, prices in the distressed property market decrease more rapidly during a receding economy. 

This is because not only are there more neglected properties during recessions, it is nearly impossible to get traditional financing for this type of property when the real estate market is receding. During the Great Recession we saw the distressed home submarket drop as much as 50% in just a few years. 

The challenge for most real estate agents is that many motivated seller and distressed property opportunities never make it to the MLS. This is because there’s an entire industry that buys and sells these homes off-market. The key for an agent to be successful in this category is understanding how to find motivated sellers and distressed properties. 

I encourage you to check out my article on finding hidden inventory here, but also, there are some automated tools that can help. For example, Chris Linsell recommends autodialer REDX as a ready-to-use platform for agents with easy-to-navigate tools and only the slightest learning curve.

Reason #2: Economic Factors Will Shift Markets

As we have emerged from the pandemic and now face a slowing economy, some market sectors will remain strong and others are beginning to decline. 

Real Estate Hot Spots

Despite the uncertain economy, the real estate industry across the country has remained robust. This is mainly because regional economic impacts have motivated some Americans to move for work or due to the high cost of living in their current area. Others are moving for what I’d call “political reasons.”

We are already seeing the impacts of this. Large expensive cities like San Francisco are continuing to lose population to more affordable areas like Sacramento, California. Cities in Florida are seeing an increase in migration from states with opposing political views. And people are moving away from Florida for the same reason.

During recessionary times, look to invest in areas where the population is growing. Increased population will support rental rates and thus property values. These hot spots will likely outperform other areas in both cash flow and appreciation.

Secondary Home Market 

Wealthy homeowners who had previously picked up a second home or vacation rental to escape crowded metropolitan areas during the pandemic are now reconsidering the need to own multiple homes. This fact, combined with a 52% drop in mortgage rate locks for vacation rentals (as reported by Redfin) simultaneously may place price pressure on secondary home markets.

Simply put: During economic slowdowns, second homes and vacations are a luxury that most people will cut back on. These cutbacks will trickle down to the real estate market as vacation rental investors struggle to keep properties occupied and profitable.

While at first look this may not sound like a positive reason to jump into real estate investing, it does set the stage for some good opportunities for investors who wish to invest in vacation areas in the near future.

Overall, the migration out of expensive cities will begin to increase inventory, making these types of property more affordable. And competing vacation property sellers will continue to lower their prices, making the previously unaffordable cities and vacation spots accessible to deal-seeking investors like myself.

If you have some patience, you can also look for foreclosures from overleveraged Airbnb investors. Since most second home buyers won’t bother with the hassle of buying a foreclosure, you might find yourself with property you can fix and flip. To learn the ropes of fixing and flipping properties, check out Kiavi’s deep-deep Ebook below.

Reason #3: Don’t Wait for the Bottom of the Market

Many people feel that investing in a falling or soon-to-be-falling real estate market is a mistake. But if you take into consideration the bigger picture, now may be the best opportunity for your clients to invest.

Timing the Market Rarely Works

I have been selling and investing in real estate for more than 29 years, and I still can’t predict the market. Back in 2018 many, including myself, predicted that the real estate market was reaching a peak and that it was going to turn any day … and it did. 

For a few months, at least. Then it turned and continued to rise for the next three years! If I can’t time the market, neither can you. But this is more than just being lucky or able to predict the future. Even if you could know exactly what was going to happen, you likely can’t act upon it. Here’s why:

Fewer Financing Options

Buying at the bottom of a recession isn’t always easy or even possible. Consider the 2008 recession. If your client was to buy at the top of the market in 2007, when the average home was $257,000, they would have lost 19% of their home’s value by 2009.

However, if they held on to the property until 2020 instead of selling, the same property would have seen a 134% increase. Of course, if your client could have timed the market perfectly and bought at the bottom of the market in 2009, and then held the property through 2020, they would have gained an additional 19%.

However, the reality is that likely wouldn’t have happened because loan qualification requirements changed drastically from 2007 to 2009. Banks required higher down payments and put restrictions on the number of investment mortgages a client could have. They also excluded rental income as a way to offset debt-to-income ratios. 

Therefore, it is very possible that your client may not have even qualified to buy an investment property between 2008 and 2014 (when many restrictions were finally loosened). 

If your investor waited to buy at the bottom, in 2009, and couldn’t, they would have missed out on more than five years of appreciation. That is why you should always teach your clients that the best time to invest in real estate is now, since the opportunity may not be available to them in the future.

Reason #4: Real Estate Is a Hedge Against Inflation

Inflation is the result of the devaluation of the dollar in comparison to the goods and services we buy. Generally, the more money that’s injected into markets, the higher the price of goods and services. The CARES Act and Coronavirus Response and Consolidated Appropriations Act injected more than $4 trillion into the U.S. economy, causing the devaluation of the dollar and an increase in inflation.

Since the dollar is worth less and assets are worth more, many savvy investors know to reduce their cash savings by buying real estate assets as a hedge against inflation. Rental real estate is an ideal asset that will not only protect against the lost value of the dollar, but will also provide income during slow economic times.

As inflation rises, so do property values, and so does the amount a landlord can charge for rent. This allows the landlord to earn a higher rental income over time, keeping in pace with the rise in inflation. For this reason, real estate income is one of the best ways to hedge an investment portfolio against inflation.

Reason #5: Housing Supply & Demand

Housing demand happens when the population of a specific area grows from both natural increase (the net of births less deaths) and migration into a given area. Housing supply is the existing safe and functional housing in the area. Supply can only be increased by adding new housing or lowering the demand for homes (making previously occupied existing homes available). 

When demand from both buyers and renters outpaces supply (or current available inventory, in real estate lingo), home prices and rents will rise. Let’s see how demand and supply are projected to behave.

Demand: U.S. Population Growth Will Continue

One of the main causes of an appreciating housing market is a growing population. When an area gains population, rents increase, and home prices will soon follow. Conversely, when the same area’s population decreases and there are more homes than people to fill them, then the home values will fall, like what’s currently happening in Italy.

According to the Census Bureau, immigration is due to surpass natural population increase by 2030. And by 2060, the U.S. is slated to reach a population of 400 million, putting enormous pressure on demand for housing. Unlike in Italy, U.S. housing prices are expected to rise steeply for the foreseeable future. 

New Construction Supply Cannot Keep Up 

The simple, logical solution to solving the supply issue is to build more affordable homes. If only it were that simple. Gone are the days of buying land and building a few low-cost homes in just a couple of months. 

Fewer Homebuilders Today

Nearly 50% of homebuilders did not return after the recession in 2008. Since then, new construction has continued to trail behind demand. 

Homebuilders are hesitant to invest in new developments during insecure economic times. Shifting real estate markets can leave builders at risk of losing millions of dollars if the market declines greatly before their projects are completed.

A confluence of other economic factors are expanding the gap between new construction and housing demand. These include slow planning and infrastructure processes, rising home construction materials and labor cost, and the declining profitability of building homes to meet the needs of the average family. These factors are expected to continue to put upward pressures on new-home prices for decades to come. 

I worry that many investors, especially younger ones, may miss out on the opportunity of a lifetime. For buyers under 40, this may be one of the last opportunities in their lifetimes that they will be able to buy undervalued real estate before the market becomes unaffordable again.

Bottom Line

Of course, no one can see the future. But I believe that house values will likely remain strong and rents will continue to rise, despite an economic downturn. On the other hand, I also think we will see inventory increase due to some homeowners being forced to sell for personal and financial reasons. This will create a few great opportunities.

If there’s one lesson for agents and brokers to take away from all of this, it’s this: The good deals will be absorbed quickly, and the U.S. will return to a highly competitive housing market.

Now is a great time to sharpen your skills and prepare yourself and your clients for the investment market ahead. The shifting economy will surely create opportunities for you and your clients to purchase underpriced real estate and invest in new markets. My hope is that the points I’ve outlined here helped you (and your clients) see why now is a good time to invest in real estate.

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