After a record length 10 year economic expansion, an upcoming recession is certain in the eyes of economists. Given that in many ways, the wounds are still fresh from the last recession, the idea of what the next contraction will bring is spurring some natural anxiety.
Though, it’s not projected to be as long or as heavy hitting as what we saw in 2007 – 2009, nor is it expected to have a grossly negative impact in real estate and housing, if any effect at all according to some.
So, what exactly would it effect? And what can you be doing to keep your property management company and/or investments as cost effective as possible during the downturn?
Before we dive into that, we need to understand why a recession is so clear in the crystal balls of economists. According to the 2019 Zillow Home Price Expectations Survey released in June, 50% of the surveyed economists, investment strategists, and housing market analysts believe the next recession will begin in 2020, with 19% predicting it will begin in the third quarter.
The market runs in cycles, so a low tide in the near future is imminent just by natural law. Predictions of it happening at any given moment now come from a few different indicating factors:
- The yield curve inverted. This has preceded every US recession since 1955.
- The Federal Reserve has been lowering interest rates to energize the economy, another indicating factor.
- The ongoing trade war with China and stock market dips.
Why is the housing market relatively safe from this?
The recession in 2007 came from anomalous factors that are not present this time around. It’s important to understand that the last recession didn’t cause the housing market to crash. The housing market crashing is what caused the recession.
Back then, mortgage lending standards were air-filled ticking time bombs. Imagine the Jenga analogy portrayed in The Big Short – the tower gets more and more wobbly the less air-tight it becomes. So, when the tower of housing inevitably came crashing down and we all yelled Jenga in far more depressing kind of way, homeowners defaulted and the housing market made like Tom Petty and took a freefall.
Luckily, we seemed to have learned something and today mortgage lending is much more strict giving the market much firmer ground to stand on. So, the recession will alter consumer behavior in terms of limited spending, but people will still always need a place to live whether they’re buying or renting.
How home-buying, renting, and investing behavior will be affected
Historically, housing prices have actually risen in a few past recessions, or fallen only by a small amount. According to a recent article on Curbed:
“During two mild recessions in the early 1980s, home prices actually increased, just as they did in the early 2000s after the dot-com bust. Home prices are less responsive to recessions because housing is an absolute need, and because buyers tend to come from better financial situations that aren’t as damaged by a recession.”
So, investors with multiple properties shouldn’t be too worried about a significantly large dip in the value of their investments.
A home-buying slow down means more renters in the market.
With the majority of millennials coming into their 30’s and starting families, home buying would typically be on the rise. Though, since many millennials entered the job market during the last recession and carry record student loan debt, many millennials are already delayed in entering the buyers market. With another recession in the wake, many millennials (who account for 45% of mortgages now) may be more inclined to stick to renting through the recession.
For those hoping to buy in the middle of the recession at more affordable prices and cash out on the upswing, it might not quite work that way this time around. Home prices aren’t expected to dramatically fall, but instead plateau for a while.
Keeping Your Business as Cost Effective as Possible
While the country as a whole is likely to tighten up their spending, it’ll be increasingly important to keep your business as cost effective as possible. Time is money, so look for ways you can outsource areas you spend the most time on and re-allocate that time to growth. Embracing software is key here. Here are 4 ways to control your costs:
1. Screen Your Tenants Carefully
Finding tenants can be time consuming work, so a lot of times you just want to fill the unit as quickly as possible. But, we can’t stress enough the importance of in-depth screening.
To ensure you find great quality tenants who will pay rent on time and take great care of the property while living there, check out our article on The Cheapest Way to Do Tenant Screening.
Also check out our recent Crowdcast session with Finret, a software empowering renters with the education they need to save all parties time and money during the rental process.
2. Keep on top of maintenance
According to a recent study, 62% of property managers and rental property owners reported maintenance as the biggest stressor of their business. It’s a huge time-suck and can get very expensive if not handled and managed efficiently.
Staying on top of emergency maintenance issues that can turn into costly repairs and structural damage can be a tough thing to address immediately after hours. At Latchel, we’ve saved our clients a lot of time and money by taking over their 24/7 or after hours emergency maintenance operations.
Cost effective troubleshooting can also save the business a lot of money. At Latchel, 30% of maintenance requests are able to be solved over the phone and 30% of our emergency maintenance requests are able to be de-escalated into standard work orders.
You can download our e-guide: Building and Benchmarking Your Emergency Maintenance Operations or learn more about our maintenance pricing options here.
3. Simplify Your Accounting by Embracing PM software
It’s easy to start letting things slip through the cracks when you don’t have a solid system set up for organizing your accounting and operational processes. Check out the Best 20 Property Management Software In 2019
4. Invest in High Quality
If you’re looking at taking on new properties, think about investing in higher quality places that aren’t going to spell trouble in the maintenance sector. With a shortage in housing and a large demand for rental properties, the investment should be worth it over the next few years. Also, think about updating appliances in the units so constant repairs don’t start filling up your plate and eating from your income.
Have questions? We’d love to chat with you about where you’re at in your business and how you can streamline your maintenance operations. You can book a meeting with us below.