Real estate investing has been extremely volatile since the pandemic. Near zero interest rates, rampant inflation, housing shortages, supply chain issues, and a financial stimulus contributed to housing prices rising by 19.3% in 2021. Those gains continued in 2022, especially in areas like South Florida. However, the tune has been changing in 2023, with some cities’ rents barely down year-over-year or only up by 2%.

It’s a shocking reversal from the 20%+ annual rate hikes we saw in 2022 that indicates power is shifting to renters. Combine that with the Federal Reserve’s recent decision to pause rate hikes for now, and it’s easy to get stressed about the state of the market. However, every real estate market presents opportunities, and positioning yourself for a potential 2024 recession can help you accumulate long-term profits from your real estate investments.

Investors can wait for real estate investments to lose value and use cash to buy assets at discounts.

Stash Cash 

Stashing cash doesn’t sound practical on the surface because inflation reduces its purchasing power every year. A cash position loses value even quicker during periods of high inflation. While inflation has cooled recently, it’s still hovering at 4.0% year-over-year. That’s not ideal for holding cash, but capital has its merits.

Investors can wait for real estate investments to lose value and use cash to buy assets at discounts. Higher interest rates, layoffs, inflation, and the return of monthly student loan payments after August can contribute to declining property prices. Investors can consider short-term CDs for their cash to earn a risk-free return while waiting for prices to go down.

Each investor can formulate their own opinion, but if you don’t stay on top of key real estate trends, you risk missing out on important details that can impact your investing decisions.

Monitor Trends

During the pandemic, remote work became mainstream and enabled people to move out of the city. Rural and suburban areas gained more traction because people wanted cheaper homes and more space. Knowing macro trends in real estate can help you pinpoint optimal locations. 

A looming development in real estate is a looming commercial real estate crisis. Over $1.5 trillion in U.S. commercial real estate debt is due in 2025. Many of these properties have been hit hard by the pandemic, and higher interest rates make refinancing less friendly for investors. San Francisco is the poster child for struggling commercial real estate, with Westfield defaulting on its loan for the San Francisco Center Mall and Hotelier Park Hotels & Resort Inc. defaulting on the loans for two key San Francisco hotels. 

A commercial real estate crisis can make cities less desirable and further fuel the shift to rural and suburban areas. Detecting trends and staying on top of them can help you discover slow-motion crashes and recoveries before others notice. 

You can also look for trends in previous recessions. Mobile homes performed well during the last recession. These homes are cheaper to buy and have lower rent which can reduce vacancies. When people want to scale down or have more affordable housing, they have turned to these types of properties in the past. Mobile homes and similar properties also do not require as much capital from investors. It’s easier to buy multiple properties and cover the mortgage during vacant months.

Each investor can formulate their own opinion, but if you don’t stay on top of key real estate trends, you risk missing out on important details that can impact your investing decisions.

Areas with population growth, good transportation, and access to amenities and stores are more desirable.

Real Estate Always Boils Down to Location

Real estate trends gauge current behavior and how it may shift in the future. Believing people will move from cities to rural and suburban areas doesn’t provide the full picture. Some areas will perform better than others, and getting the maximum return during a 2024 real estate recession requires knowing the right locations.

Areas with population growth, good transportation, and access to amenities and stores are more desirable. Many real estate investors start with local properties since it’s easier to drive to each one. However, investors who have the team and resources to explore remote investing can tap into more areas. Investors may have to sit on the sidelines for one-to-two years before the bubble bursts. Building your network now and staying on top of trends will make it easier to capitalize on declining property prices.

Lower interest rates will make financing more reasonable, but real estate prices may still fall due to the 2024 recession.

The Fed May Lower Rates During the 2024 Recession

Higher interest rates decrease property values because of higher mortgage payments. While the Fed indicated that it may continue raising rates in 2023 after a brief pause, a 2024 recession can force the Fed to pivot. Speculation of a Fed pivot in late 2022 and early 2023 became frequent chatter, but past recessions hint at lower rates in the near future. 

The Great Recession highlights the trend of declining interest rates during a recession. In an article from 2006 that feels starkly identical to present times, CNBC journalist Martin Wolk covered the Federal Reserve’s 17th consecutive interest rate hike. The objective of the 17th consecutive interest rate hike was to “keep a lid on simmering inflation.” This jump brought the interest rate to 5.25%. Two years after that final rate hike, the Fed abruptly dropped the interest rate to near zero as part of a desperate attempt to stimulate the economy. Concerns about inflation faded away as new fears gripped the economy.

The federal funds rate peaked at 5.25% in 2006, the same level it’s at today. After rates plummeted in 2008, the Fed didn’t bother raising the rate for seven years. If history repeats itself, real estate investors may soon have sharp asset price corrections and a prolonged period of near-zero interest rates.

If a 2024 recession takes place, the Fed can lower rates in the same way it did in 2008, despite narratives of high inflation that exist now and took center stage in 2006. While this event may take place in 2024, it lines up nicely with the $1.5 trillion in U.S. commercial real estate debt coming due by the end of 2025. Lower interest rates will make financing more reasonable, but real estate prices may still fall due to the 2024 recession. This scenario would be a repeat of the Great Recession and can present a tremendous buying opportunity for real estate investors.