What is a bear market in real estate?
October 28, 2022
Lions, tigers, and bears, oh my!
Whether it’s happening now or sometime in the future, you’ll likely encounter the phrase “bear market” as it relates to any financial market…including real estate.
Understanding what a bear market is is quite a bit like anticipating heavy weather conditions. You’ll want to know what you can expect so that you can prepare appropriately.
In our never-ending quest to make all of our clients savvy real estate investors, we’ll talk today a bit about what a bear market is in real estate.
Bears vs. Bulls
A bear market in real estate is technically defined as any period of time in which the values of a given asset (like a house or a stock) fall 20% from a recent high.
The name originates from the humble bear’s general nature of being skittish and easily startled. When a bear market dawns, the bears are timid about making investments because they fear that things could get worse.
Juxtaposed against this is the rip-snorting bull market. The equal opposite of a bear market, a bull market is a period of time in which the values of a given asset have risen 20% from their previous high.
Investopedia states that the “commonly accepted definition of a bull market is when stock prices rise by 20% after two declines of 20% each.”
Bulls charge forward, bears retreat backward. Now you’ve got the basic hang of the animal kingdom!
What does a bear market in real estate mean
When a bear market in real estate rears its head, it means that the power balance between buyers and sellers is on the move.
Ultimately, buyers have a powerful influence on the flow of the market. When there are ample buyers looking to scoop up a property, either as a primary residence or an investment, the values of those properties (especially when limited) are going to be driven greatly higher.
This is essentially what we have experienced for the last couple of years in the greater Snohomish County real estate market.
Now, with mortgage rates rising up, the market is losing some of its momentum. Naturally, buyers are keener to wait this “season” out and see if better mortgage rates will return.
You could also think of a bear market in real estate as being a brief “hibernation” period (to keep it on theme).
Are we in a bear market right now?
Technically speaking, we are not in a bear market until values of homes fall 20% lower than their local high.
Going off of this definition, we are not currently in a bear market. Home values have stayed remarkably stable, and although they have trended downward, we are a long way from 20% below their local top.
How should I prepare for a bear market?
Should the bears decide to go and hide in their dens, it doesn’t mean that you have to follow behind them.
Being prepared for a bear market in real estate is as simple as having your house in order.
It’s always important in any investment to not over leverage yourself. If you’re comfortable with your monthly mortgage payments, then it’s a great period of time to just hang tight and see what the season brings.
If you’re feeling tense about your monthly mortgage and are looking for a move, it is by no means a bad time to list your home and consider an alternative plan.
And if you’re a cash investor looking for stronger deals in the market (and less competition), this may just be your best season yet.
Whatever your real estate goals are, we’re here to help. Our team of professional agents has all the experience and know-how to get you where you need to go—bears, bulls, and beyond.