Equity Gains: A hedge against the looming economic recession

Updated: Aug 16

How to gain wealth in the long term amidst market uncertainties?

For the first time since 2009, the U.S. gross domestic product was negative for two quarters in a row. After dropping 1.6% during the first quarter of 2022, the GDP fell another 0.9% in the second quarter, according to the Bureau of Economic Analysis. - US News


The National Bureau of Economic Research definites a recession as a significant decline in economic activity spread across the market, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The United Kingdom further defines it as two consecutive drops in gross domestic product (GDP). Both of these definitions appear to reflect the current US economy; however, the current economy is quite different when compared to previous recessions. Kristina Hooper, the chief global market strategist for investment firm Invesco, states that “There may be little difference between a minor recession and a substantial slowdown,” according to Hooper, “and the future direction of the economy may rest on how the Federal Reserve chooses to address inflation in the coming months.” - US News


As the U.S economy recovers from the onslaught of effects of the global pandemic; which caught every country and businesses off guard; it is expected that the economy will continue to substantially slowdown following the rise of inflation rates. This begs the question, how will you be able to capitalize on these recent market conditions and ensure a stable form of investment for your family in the future?


During times of financial crisis, the real estate market has always been favored with investors versus stocks, bonds, and other labile assets. The primary reason for this is that real estate continues to appreciate in value over time. In North Dakota, price appreciation is at 10.1% over the past year alone.


This means that if someone sold their house at the median price, they would have equity gain of around $27,000 for investing after just one year. Demand for real estate will always come, as shelter is a basic necessity. With present market conditions, many may think that it is not the right time to buy real estate now, but here are facts to consider.


1. Supply of Homes

Above is the recent data from National Association of Realtors (NAR). In comparison to the housing bubble in 2008, the housing supply is in shortage rather than surplus. A surplus of homes helped to trigger the massive drop in 2008 home prices. Something to note, is that the supply of real estate inventory needs to be sustained in order to maintain normal real estate market conditions over the next few months. The shortage of supply is also an indication of a strong competitive market. Capitalizing on this by putting property up for sale will provide rapid equity gain.



2. Lending standards are much stricter with better controls today

Infographic from Mortgage Bankers Association


During the years leading up to the 2008 financial crisis, it was profoundly easier to get a home loan than it is today. Previously, banks eased the requirements for home loans; which led to mass defaults and foreclosures. This ultimately led to the drop in home prices. Today, stricter regulations within the lending industry have led to a controlled mortgage environment which has benefitted the real estate market as a whole.



3. Foreclosure rate is far from before

This is one of the most convincing pieces of data that the real estate market is far from a bubble. The data shows buyers now are more qualified and committed to purchasing their homes and less likely to default on their loans. This prevents home prices from sinking down because there are fewer distressed property listings such as foreclosures or short sales. Today, homeowners are enjoying healthy price appreciations and substantial equity gains. North Dakota’s foreclosure rate is one in every 4,446 Housing unit, that is only 0.02% in comparison to the national average at 0.12%. This places North Dakota at 3rd place as among the states with the least amount of foreclosure filings per housing unit, next to South Dakota and Vermont.


The North Dakota Difference


North Dakota has proven to be resilient amidst previous financial crises. It is ranked 9th in the United States for its economic outlook and is currently ranked 14th in the United States for its economic performance. With oil and gas being one of the primary economic drivers and decreasing unemployment rates (from 3.1% to 2.5% in the first half of 2022), North Dakota is expected to be resilient amid the country’s overall market conditions. This means that with these economic projections, North Dakota Real Estate is primed to be a strong investment plan to build wealth through equity.


It is true home sales will come into a substantial cooldown in the coming months. However, it cannot be denied North Dakota home prices have remained relatively stable compared to the previous years despite the current economic slowdown. According to CoreLogic, the average homeowner equity gained in North Dakota is $19,000 in the first quarter of 2022, where home prices have maintained their upward trajectory to date.


Bottomline.


Real estate market conditions in the past months have been bumpy, though they have shown resilience in comparison to other assets of investment. Property price appreciation and equity gains have continued to be competitive year over year.

There are ways to navigate a seemingly tough real estate market. This is the time which experience and creative strategies build wealth. Whether considering to buy, sell, or invest into real estate, it is critical to do so with a real estate professional team which has weathered this type of storm before.

Here at Proven Realty, we are dedicated to giving our clients a hassle-free experience from start to finish. We work to educate our clients and empower them to believe the journey to homeownership should be something enjoyed. Check out our current listings and we will help you find your dream home!


0 comments