You may or may not have heard of normalcy bias. It’s the tendency to believe that things will continue to be the same in the future as they are now.
But that’s not the way the world works. Market conditions do change – and they can change fast – which is why normalcy bias can be the biggest threat to your survival as a real estate investor.
When a housing market downturn is looming, some people are more prepared than the others.
If this current housing boom is ever going to have a top – and it will – I have an obligation to my followers to prepare them in advance.
Wealth Transfers
The most opportune moment that any real estate investor ever gets to obtain a sizable “wealth transfer” from other investors is by selling to them when home prices are near peak valuations.
Investing is like a game of musical chairs. Victory goes to those who secure a seat before the music stops.
If your next door neighbor’s house sells for $20,000 more than the last home sale, – Presto! – you’re instantly $20,000 richer. But if that house were to sell for $20,000 less – Poof! – your net worth evaporates just as quickly.
To be clear, I’m not saying this record-setting housing boom can’t go to even greater extremes. But after the market does top out, history suggests that home prices will return to a long-term trend line – which based on today’s valuations, would be about 30-40% below current levels.
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March 19, 2022 Seminar
And What You Should Do About It