A real estate market crash can happen at any time. Even the most skilled and experienced realtors are often unable to predict when the market will crash. For that very reason, it is essential to keep yourself prepared to deal with the odds always.
In this guide, we’ll share six effective tips that can help you stay financially safe even in the worst real estate downfalls. Let’s get started!
Predicting Real Estate Market Crash
Before diving any further, let’s check out a few indicators that can help you prepare yourself timely.
Usually, when a real estate market crash or real estate market correction is about to happen, you’ll witness three things. These include:
- Mortgage or rent becomes higher than average pay (for the respective house division)
- Rapidly increasing interest rates
- Increase in high-risk loans (low credit standards)
Although we do not encourage you to completely rely on these indicators as the market is unpredictable, we do recommend taking help from these time to time. There’s a high chance the housing market is about to crash if you witness all three at once.
6 Tips on How to Protect Yourself from a Real Estate Crash
Technically, the most effective way to protect yourself from a real estate crash depends on the real estate trends in your respective area as well as your financial status. However, the following six tips are some all-embracing strategies that can help beginners, intermediaries, as well as expert realtors to minimize the possibility of damage.
Determine Your Buying Power
Sit down and calculate your incoming and outgoing money. Determine how much you can afford on a one-go or monthly basis.
A lot of people allow their real estate agents or mortgage lenders to make this decision for them. Consequently, they end up signing up for a house they cannot afford at convenience. You’ll find yourself heavily indebted or struggling when the housing market crashes.
So, it’s best to do your calculations and determine the total amount you can afford to pay for a house or property.
Aim for Greater Home Equity
Never opt for a $0 down payment. It’s alluring, but it’s a trap. Usually, financing plans with a $0 down payment come with extremely high-interest rates. You cannot attain complete ownership of the house even if you pay the mortgage for years.
Plus, zero down payment plans give you zero ownership of your house until you pay off the complete amount. That means when the real estate market crashes, the house-owning authority has complete right to evict you from the property and sell the house to deal with their own financial crisis. You can go homeless in seconds. Henceforth, always aim for at least 10-20% equity.
Pay off your Debts
When house prices increase, interest rates increase too. Therefore, it’s best to pay off your debts at your earliest possible convenience. If the market crashes suddenly, you might lose all of your stability at once.
As mentioned earlier, you cannot predict when or how the housing market will crash. So, keep yourself prepared for the worst-case scenario at all times.
Save a certain percentage of your income every month. It can be as small as 2 percent. But ideally, you should save about 10 percent if you’re starting from scratch.
Say you earn $1500 per month. If you save 10 percent (starting today), you’ll have about $450, which is sufficient for renting a decent one-person apartment in the USA for a month. If things work fine and the housing market crash 2023 occurs in the latter part of the year, you’ll have a bigger amount to deal with the situation.
So, begin saving today and prioritize it over your expenses. Cut down fancy dinners if you have to, and save until you have a reliable emergency fund.
Rent for Temporary Stays
If you’re living in a city for less than five years, it’s a good idea to rent a property instead of buying it. That’s because buying a house also comes with maintenance costs. You’ll have to maintain the house timely and pay taxes.
On the contrary, if you rent a house, you’ll only have to pay for your living. It saves you money for emergency funds and protects you from the adverse effects of a real estate market crash.
The best way to protect yourself from a financial crisis during a real estate market crash is to diversify your investment portfolio. Avoid investing all your money in real estate only.
Instead, invest in stocks, rental property, gold, certificate of deposits, etc. The more diverse your portfolio, the safer you are.
Preparing for a housing market crash is all about being financially responsible. Do not rely too much on your land-based assets, and diversify your streams of income. Work on minimizing the unnecessary outflow of cash. Most importantly, do not make purchases depending on cash that may make its way to you. Spend wisely.