The theme this week on the Retirement Quick Tips Podcast is: Sure Fire Bets That Fizzled Out

Today, I’m talking about the sure fire bet of real estate that went bust in the mid-2000s. In the mid-2000s, it was accepted as gospel that housing prices would continue to rise. I remember hearing people say things like, real estate will only go up from here. Of course, that didn’t happen. 

Many people bought homes with little to nothing down and were able to secure mortgages they couldn’t afford with adjustable rates. Risky loans were repackaged and sold as investments and it didn’t take much for it all to unravel. 

By 2008, the housing market was still in freefall and my husband and I were looking to buy our first house.  At the time it seemed like every other house we looked at was a foreclosure or short sale. 

I see a lot of similarities with real estate today, but since lending standards have tightened significantly, and people have a lot more equity in their home today to provide a better safety net, it’s not clear what will happen to the housing market as it continues to slowdown. 

But this time around, exceptionally cheap borrowing has made it a lot easier for people to leverage up and buy not just houses, but rentals, commercial properties, etc. 

When you look at real estate broadly as a group, the US REIT (Real Estate Investment Trust) Index was down more than 20% for this year through the end of November. It’s a broadly diversified index that includes real estate investments in the residential, office, industrial, and retail sectors, and it shows how after a run up of 43% last year, real estate is in a bear market already in 2022. 

The lesson here is that the experts often get it wrong. No one truly knew what would happen with real estate in the mid-2000s, and no one knows what will happen with real estate today. WIll we experience a small correction or a total meltdown on par with the collapse of 15 years ago? 

Since we can’t predict what real estate, or more specifically housing prices or mortgage rates will do from here, it’s important to not get swept up in the circumstances and prevailing opinions of the day when making big financial decisions like buying a house or buying an investment property. I think a lot of people overextended themselves over the last several years with too little down or too high of payments that were contingent on the economy staying healthy, full employment and full occupancy. If the economy continues to weaken in 2023, we could see things get much worse across all sectors of the real estate market. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.  

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance