And it’s not a matter of IF, but a matter of WHEN.
We can look back at the past 40 odd years and see a pretty clear trend: in the 1980’s there was the savings and loan crash; in 1987 the market crashed; the dotcom bubble erupted in the early 2000’s; and more recently the global recession of 2007-2008.
If history continues to repeat itself, as it usually does, we’re in for another market correction.
What to Expect
Now, before you get all worked up and worried, hear this: you can prepare yourself and perhaps even profit under the circumstances.
After a substantial drop (666 points) in the Dow last week, many are concerned and speculating as to the outcome. Some blame the departure of Janet Yellen from the Fed, as well as the Fed’s issuance of a more aggressive inflation outlook.
Plenty of people are concerned about not only increased inflation rates, but also accelerated interest rates, which are typically viewed unfavorably. Consumers have to cut back on spending to make up for interest on things like credit cards, car and mortgages loans.
Take It from an Expert
Andrew Lanoie of Four Peaks Partners wrote a great piece about this very topic. He shares some useful insight into the evidence behind the forecasted correction, and how we, as investors, can survive and even prosper:
“The cutback in consumer consumption, in turn, slashes the bottom lines of businesses. Higher interest rates can also affect businesses directly. As the cost of borrowing increases, businesses cut back on capital outlays such as on new equipment and new hiring, thus slowing productivity.
This affects the stock market indirectly since falling income affects stock values and if a collective fall in stock values result across multiple businesses, a downturn or even a crash can occur.
Also with higher interest rates and accompanying higher bond rates, some investors will start re-allocating assets from stocks to bonds, further eroding stock prices.”
How Can Real Estate Investors Prepare?
Demand for affordable housing will likely rise. Usually multifamily housing, mobile home communities and storage units are typically recession-resistant.
Mobile home communities are particularly attractive investments, as traditional housing becomes less affordable. Check out our webinar with Andrew Lanoie on the viability of mobile home community investments.
The Key Takeaway
Investors in affordable housing, like the ones mentioned above, will be the most prepared for and resistant against the next market correction.
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