How to survive & thrive during a potential real estate recession: Part 1
The best way to build success during a disaster is to monitor what's happening daily, while hoping for the best but planning for the worst.
It could also be helpful to review past recessions.
But perhaps the best place to begin is China. Because they're already on the mend, the Chinese rebound could give us some ideas about what's to come in the U.S. residential real estate market.
Here's a timeline of China's trajectory thus far
December 2019 - First cluster of coronavirus cases in Wuhan. Average daily real estate sales in 30 major Chinese cities: 5,760.
January 30, 2019 - China has 8,137 confirmed cases. The U.S. has 6.
February 8, 2020 - Across 30 major Chinese cities, only 22 home sales are recorded on this date, the worst real estate day recorded during the health crisis.
February 16, 2020 - China's third-largest property developer, China Evergrande Group, offers 25% discount for all property sales from Feb. 18 to Feb. 29.
March 15, 2020 - Chinese home prices from January to February rise just 0.02%.
March 31, 2020 - Home sales in major Chinese cities explode to 5,976 transactions in one day.
April 5, 2020 - Across 20 major Chinese cities, housing values decline 6.1% on average. The largest price drop was in Guangyaun, which saw values decline by 14.36%.
April 6, 2020 - About 80% of China's original economic activity has restarted.
We don't have a complete picture yet on how housing prices will be impacted in China, so far March data shows the decline detailed above. It will be interesting to see if April's housing values mark a deeper decline or a rebound. A big factor could also be if COVID-19 re-emerges anywhere in the country. Despite the bounce back in the volume of real estate sales, labor markets remain weak in China and consumer demand for housing could waver if tighter restrictions return.
It should also be noted that the recovery thus far is uneven. The wealthiest, most-developed provinces are returning to work faster. While cities closest to the epicenter, Wuhan and surrounding areas, are being more cautious and thus are slower to reopen for business.
For many real estate entrepreneurs in China, the damage is already done. More than 100 Chinese real estate firms filed for bankruptcy in the first 2 months of 2020.
How real estate in China and the U.S. is different
The U.S. has as a mature real estate market. Rapid growth in U.S. real estate took place over 70 years ago, following World War II. Whereas China is in the midst of that rapid growth phase today. They have a fast-growing middle class, which could suggest a faster return to 'normal' for Chinese real estate, depending on unemployment.
That being said, the U.S. has a much more established real estate system. There are many more third-party agencies here to assist consumers and to ensure fair transactions. Another major factor is that when you buy a property in the United States, you own it forever until you sell. In China, ownership is temporary, your property rights are for a period of 50-70 years.
There are a great many other variables in the two markets, including taxes, data and lending differences.
So what's next?
To sum it up, we can't rely on China's market to tell us exactly what will happen here when business restarts in the United States. But it could give us some ideas and I'll be watching closely.
Next up, what we can learn from past recessions and their impact on housing prices? Did you know that during some U.S. recessions the price of housing has actually gone up? I'll look at any current data coming out that will give us some hard signs on where we're headed and share all of the above with you on here.
I will also share our buying strategy during the downturn: how deeply discounted properties must be for us to buy right now; and what types of real estate we will look to invest in during this market shift.
The biggest gains can be made at the start of a new market cycle. So learning as much as you can about what is happening right now is key. Remember, you make money when you BUY, not when you sell.
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Including how our current construction project is faring amid dwindling supplies. Would love to also try and answer any of your questions or comments below! Please share this post if you it to be helpful.
One final disclaimer: I am not an economist, financial advisor or accountant. Please do your own research prior to making any investment decisions!