invest-despite-bubble

Over the past five or six years, I’ve heard the following claim consistently made by investors both in my home market of Denver and nationwide. It seems by far to have been (and continues to be) the most popular prediction made by investors both experienced and novice:

“The market is probably going to [reset/correct/crash/fall/decline/etc.] over the next 18-24 months.”

It seems like pundits have predicted a price squeeze or bubble that was two years out on average every single year out of the last five. Don’t believe me? Check out article after article from basically every major media outlet in the United States predicting a bubble at some point in the last six years. I’ve even compiled a sampling for your reading pleasure below:

2013:

2014:

2015:

2016:

2017:

2018:

I could go on.

How Long Are You Willing to Wait for the Impending Market Crash?

If you believe that a market crash is coming, you are either right—or else you might be waiting a long time to get started in real estate investing. There were people waiting for the next crash in 2013, 2014, 2015, 2016, 2017, and still here in 2018. Oh, and of course, there were just as many equally well-written and well-researched opinions talking about the great health and future growth of the housing market, which also continues today.

But the point is that I’ve heard about an impending market crash throughout my (admittedly short) entire investing career.

Let me ask you this: When the next crash comes, will prices drop below 2013 levels? Below 2015 levels? Below 2017 levels? How much do those waiting for the crash stand to gain by waiting this thing out, and how much will those who own property today lose?

How low do prices have to go to eliminate the gains of the last six years here in Denver? How about your city?

These pundits—I don’t believe that they are any smarter or stupider than you or me. The thing is, I don’t think anybody knows when the market is going to crash. Nobody knows if that will happen this year, next year, the year after, in five years, or in 20.

To be clear, I’m not saying that I think the market will continue to go up forever. And the truth is, I’m scared. I’m afraid of two things:

  1. I’m afraid that the market will crash and that I will lose a ton of equity very quickly.
  2. I’m afraid that the market will climb much higher and that I will miss the ride if I don’t buy more.

I’m equally afraid of both of these things!

I’m sure that if you have an opinion on the market over the short to medium term (2-5 years) future, you have great reasons. I bet you have a bunch of charts, just like those pundits. I’ll bet that you can cite numbers that talk about supply, demand, interest rates, leverage ratios, employment, household income, the stock market, inflation, the trends of the Millennials, the trends of the Baby Boomers, or something else that’s just as important as all of the above.

But I’ll also bet that the fellow who is just as smart as you, but has the exact opposite opinion, has strong data behind his beliefs as well.

The fact of the matter is that if you believe that the market is going to crash, then you could be right! You could also be wrong! Or (and in my opinion the worst and saddest waste of being able to say “I told you so!”) you could be right and still lose.

The thing is that you don’t know which of those metrics and factors will be the lever that actually moves the housing market over the next few years.

As I hope I’ve demonstrated with the news articles above (and I can anecdotally tell you that I’ve been part of discussions on BiggerPockets about this very topic since 2014), we hear this song and dance about impending crashes all the time as real estate investors.

It scared me when I was thinking about starting to invest in 2013, and it scared me in 2014 when I bought my first property. It scared me in 2015 as I held that first property, and it scared me in 2016 when I bought again. It scared me in 2017 as I held those two and bought a third. It scares me now in 2018 as I plan to buy another property.

One day, the doomsday prophecies WILL come true. These pundits (and…