June 25, 2024

Three Historical Events That Shaped Real Estate Investing


Over time, real estate investing has secured itself as an essential follow-through to wealth. Before money was considered at the forefront of currency, land was a defining factor, and still is. So, there is no surprise that, still, today, there is a place in wealth-building for land ownership.

Although it has fared its value over time, it is not to dismiss the fact that historical events have played a role in shaping how individuals approach real estate investment. This was proven most recently when the 2020 Pandemic saw an unprecedented boom in the real estate sector. While it's possibly one of the most memorable, it's likely because it is the most recent. A few other market-stimulating events include the Great Depression, the 2008 Housing Bubble, and the Rise of REITs.

The Great Depression

In the early 1900s, the Great Depression crippled the economy. It was one of the most defining moments in history, especially for real estate investing. It was preceded by the 1929 stock market crash which had led to widespread economic turmoil, including a severe decline in property values and a wave of foreclosures. Many investors lost their properties and fortunes during this time, leading to a significant shift in the real estate market.

One of the lasting impacts of the Great Depression on real estate investing was the creation of the Federal Housing Administration (FHA) in 1934. The FHA introduced government-backed mortgage insurance, making it easier for individuals to obtain home loans and stimulating the housing market. This event marked the beginning of government intervention in the real estate industry and laid the foundation for modern mortgage lending practices.

The Housing Bubble and Subprime Mortgage Crisis

While there may not be too many people in a given circle that can vividly recall a boom or how they may have personally benefited from investing post-Great Depression, there are likely a few that can recall benefiting post the Great Housing bubble which was created by unstable lending practices. The housing bubble and subprime mortgage crisis of the mid-2000s had a profound impact on the real estate industry and the global economy. The housing bubble, fueled by lax lending standards, speculative investing, and a surge in home prices, reached its peak in 2006 before bursting in 2007. The subsequent collapse of the housing market led to a wave of foreclosures, bank failures, and a deep recession.

One of the key lessons learned from the housing bubble and subprime mortgage crisis was the importance of responsible lending practices and risk assessment in real estate investing. Lenders began to tighten their lending standards, requiring higher credit scores, larger down payments, and stricter income verification for borrowers. Investors also became more cautious, focusing on long-term value and income-producing properties rather than short-term speculation.

In response to the crisis, The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010. This Act was instrumental in implementing most of the current lending practices, designed to be stricter, more regulated, and with increased transparency in financial markets. It also established the Consumer Financial Protection Bureau to protect consumers from predatory lending practices.

The Rise of Real Estate Investment Trusts (REITs)

REITs are publicly traded companies that own, operate, or finance income-producing real estate across a variety of property types, including office buildings, shopping centers, apartments, and industrial facilities. Investors can buy shares in REITs like stocks, providing them with a liquid and diversified investment in the real estate market.

The creation of REITs in the 1960s was a key revolution in real estate investing. It provided the opportunity to create passive income by investing in real estate without actually having to directly maintain and oversee the operations of the asset. It was and still is one of the best ways to diversify a real estate portfolio.

REITs have become a popular investment option for individuals, institutions, and pension funds seeking exposure to the real estate market while benefiting from the liquidity and transparency of public markets.

NREMG Can Help You Start Your Real Estate Investing Journey

Numerous historical events have played a part in shaping how we experience and invest in the real estate market. The reality is the day-to-day of the economy shapes the available opportunities. While the landscape can be unpredictable, it doesn't have to be complex. National Real Estate Management Group prioritizes the importance of diversification and risk management in real estate investing. We also value the need to maintain awareness and stay abreast of the current market and economic trends to ensure we are providing the best service to our clients.

We help our clients succeed with their real estate goals by connecting them with opportunities that are aligned with portfolio objectives. We can assist you in doing the same. Contact us today and let’s discuss your real estate success.