Who’s Ready for a Recession 2020?

109 Replies

Media often spins the truth to sell advertising so it appears. Regardless if we enter a recession or not, the key point is this: Are you ready to adjust your strategies, your underwriting, your acquisition nets, your exit strategies, etc. if a recession hits? If it does, I can tell you this with almost certainty, it will not be like the last one and it will not be worse than the last one as some allude to.

Many investors position their portfolio to be recession resistant (good locations, cash flow, added value, prudent debt, reserves); so, they are ready and will do just fine. We don't invest in the total national market, we invest in individual properties and REI is very local.

As far as wanting one, most people would not wish that on anyone (job losses, lost homes, displacement, business closings, family stress, increased crime).

Originally posted by @Mike Dymski :

Many investors position their portfolio to be recession resistant (good locations, cash flow, added value, prudent debt, reserves); so, they are ready and will do just fine. We don't invest in the total national market, we invest in individual properties and REI is very local.

As far as wanting one, most people would not wish that on anyone (job losses, lost homes, displacement, business closings, family stress, increased crime).

NO kidding this wishing for a recession is pretty short sided thinking.. for a few reasons.. landlords could get hurt just as bad as others in certain markets.. and those that think they are going to do what they do today.. IE max leverage go buy deals are going to find financing all of sudden just is not there like it is today.. Cash buyers another story.. but many who think they are going to use todays financing models just don't have a clue as to how rapidly things change when lenders change policy from one day to the next..  

 

Absolutely yes!  Facebook said so.  Sell me all your stocks and properties now for cheap, because in 7 months they will be 80% below current value.  ;-)

I have no idea...nor does anyone else.  The last recession was only correctly identified by a handful of people who specialized in out-of-the-box speculative shorting the market.  Read the book/watch the movie "The Big Short" and you'll see that only 1% of 1% of 1% of 1% had both the ability both to PREDICT and TAKE ADVANTAGE of the 2009 Recession.

Frankly, I find all this talk of 2020 Recession to be very counter productive.  So what if it happens?  Buy cheap!  So what if it doesn't happen?  Sell high!

Bottom line: a wise investor makes money in ALL market conditions, not just when it's up or down .... or sideways.  No one talks much about sideways investing.

@Jay Hinrichs tomorrow never comes for those who wait for tomorrow.  If they are unwilling to buy in a benign economy, there is no way in heck they will buy when the economy is a wreck.  There is a reason why prices go down during recessions...very few people (including investors) buy!

@Jazlynn Gibbs

Most of the recent market sentiment has been driven by constant anecdotal updates. If you take a look at the actual economic data, the economy is telling a calmer story. Job growth, retail sales and most other GDP indicators are healthy from a historic perspective and against a backdrop of conflicting tweets, news articles and headlines, it can be difficult to see that.

While we have been in a long bull run, that in itself does not justify a recession. As mentioned above, investors need to continue to conduct conservative underwriting and position their portfolio to be able to weather all storms, while not missing out on what could be a mild, long and steady continual trend upwards.

I would like to address the comment "no one would wish a Recession on anyone". That is not always true. Recessions benefit those who have been priced out of a market. If 2009 had not happened, what would prices look like in California, Nevada, Arizona, and the hot East Coast Markets? A Recession is simply a natural correction to overheated markets.

People have a funny tendency to be irrationally exuberant. They will keep bidding up prices higher and higher, and as long as lenders are willing to lend, then lower and sometimes middle income people get priced out of the market. Recessions bring irrationally exuberant bidders and high prices back down to earth when nothing else will.

Is there a lot of pain? Yes, certainly. But one should always ask, "Is the alternative better?" In this case, had prices not come back down significantly, it is unlikely that anyone with less than a 6-figure income could afford to buy a home in desirable markets today.

There are many unpleasant events aside from financial recessions that cause devastation and suffering, but the alternative is the status quo. Sometimes, the cost of maintaining the status quo is HIGHER than the cost of the negative event. Consider War. Ask any person liberated from German rule during WW2 if they wished for War, and they will say, "YES!" The alternative was death.

So the question is, "Who benefits and who loses in a Recession?" There are always some on either side.  Our goal as investors is to be on the "benefit" side.

Originally posted by @Erik Whiting :

I would like to address the comment "no one would wish a Recession on anyone". That is not always true. Recessions benefit those who have been priced out of a market. If 2009 had not happened, what would prices look like in California, Nevada, Arizona, and the hot East Coast Markets? A Recession is simply a natural correction to overheated markets.

People have a funny tendency to be irrationally exuberant. They will keep bidding up prices higher and higher, and as long as lenders are willing to lend, then lower and sometimes middle income people get priced out of the market. Recessions bring irrationally exuberant bidders and high prices back down to earth when nothing else will.

Is there a lot of pain? Yes, certainly. But one should always ask, "Is the alternative better?" In this case, had prices not come back down significantly, it is unlikely that anyone with less than a 6-figure income could afford to buy a home in desirable markets today.

There are many unpleasant events aside from financial recessions that cause devastation and suffering, but the alternative is the status quo. Sometimes, the cost of maintaining the status quo is HIGHER than the cost of the negative event. Consider War. Ask any person liberated from German rule during WW2 if they wished for War, and they will say, "YES!" The alternative was death.

So the question is, "Who benefits and who loses in a Recession?" There are always some on either side.  Our goal as investors is to be on the "benefit" side.

I get it.. but investors don't need economic wipe outs to make a fair return..  if it happens well obviously those that can partake get the benefit but there is a lot of despair as well.  For me though 08 to 2011 was an event I never saw in the previous 30 years in the business there was some regional blood letting.. many don't realize but the SF bay area right after the earthquake and war some high end homes dropped 50% even in the pristine areas.. so its happened.. but on a national scale 08 hopefully was a once in a lifetime event.  And I for one don't wish for another no matter how good the buys would be. 

 

@Jazlynn Gibbs

I've been thinking about this a lot. Even if there is a recession in the next 12-24 months, it's not going be a crash like 10 years ago. 

For one thing, short term liquidity isn't going to dry up to the extent that we saw back then. The data is a little stale, but the Fed bank of Minneapolis estimates banks are holding more than $2 trillion in excess reserves.

There is also a lot of liquid capital on the sideline looking for somewhere to go. According to the FT, private equity has $2.4 trillion in dry powder. Not all of that will be available in a serious downturn, but it's a good indication of money out there waiting for higher returns.

That doesn't mean there won't be a cyclical slowdown or some external shock to the economy. It just means it is unlikely that asset prices prices will collapse as significantly as before.

@Jay Hinrichs , I do not disagree with anything you say.  Simply pointing out that many non-investors probably benefited at least as much if not more more than investors from the Recession due to falling real estate prices.  Some people scooped up fantastic deals between 2008-2013 in hot markets that were cool for awhile. 
Ideally, we'd all simply make profits by improving the use of real estate, but humans are such irrational creatures we make the same mistakes over and over.  I don't wish for another Recession--moderate, steady growth over time is ideal!  But another Recession is going to happen eventually, so I figure might as well be prepared as best I can.  Sometimes survival is the best one can hope for, but if opportunity comes up I won't hesitate to take advantage of it.

I’m so ready.... but for no other reason but the fact that maybe when it finally happens we can stop seeing these post EVERY. SINGLE. DAY.

I doubt there will be a recession in the USA in 2020. The same cannot be said for other parts of the world. Germany is on the brink of recession and China seems to be heading in that direction as well. The UK may also go into recession because of the uncertainty surrounding Brexit. The Fed is lowering interest rates because economies outside the USA are weak. 

I'm not expecting a recession to cause a real estate crash with ridiculously low prices.  I think it's likely that this crash will be caused by financial markets and not housing.  I think it's possible if not likely that investor cash will leave the securities markets and funnel into income-producing real estate of all types.  Not sure and not betting on it but there is no asset I would rather have in this situation more than residential rentals, particularly big & small multi-family properties.

I made a post similar to this last year. Got the same responses as someone else did who posted the question a year before me. Another dude posted the question a year before the last guy and got the same response as the guy who posted it a year before him.

One should always have money on hand for the good times.  Good times are when people are desperate to sell and there are deals to take advantage of.

But I don't think 2020 is going to be the year

I am not sure it will happen in 2020, however I have been told the market will correct itself eventually. In the meantime I think it would be a good idea to keep yourself in a recession ready mindset. 

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Housing prices rose again last month, 89 months in a row of year over year increases. Sales were up, inventory is down. You’d think at least 1 or 2 of those three things would be the opposite if we’re headed for a recession. 

I’m not saying it can’t or won’t happen but every person out there hoping for a recession acts like they are the only one, and that will call the bottom perfect. They need a MASSIVE DROP, one only seen in the average market once in my life time.Then they need the courage and resources to buy at that exact moment, so they can get the price they could have gotten 5 years ago. 

What if prices drop 5 or 10% all the way back to 2017 prices?Are all the railbirds going to jump in to the market and stop any further fall? Or are they going to be bitching about how they were “ready to buy” and then the prices started climbing again, or they kept getting outbid by big cash buyers?

If your plan is buy one rental the rest of your life, just keep waiting. If you plan to buy 5 or 10 or 20, buy one TODAY. What’s the worst that happens, you get the other 90% cheaper? I would Rather pay 20% more for any house I’ve bought in the last 5 - 10 years then be forced  to sell it for 20% more than I paid. 

@Tim Swierczek I agree with you that the financial markets will cause the crash but real estate will still be affected, just not as badly as 2008. From what I’ve read and listened to, corporate debt will be the catalyst to this upcoming recession. While you can’t say for certain a recession is coming, I think it is highly probable that one is coming. The fact that both the 2-year and 10-year treasury yield have inverted helps back this highly probably claim. Real estate will still be a good play, along with a significant cash holding to take advantage of the pullback in the markets

@Jazlynn Gibbs I just read Aftermath by James Rickards and he paints a good picture of what the financial landscape will look like after this next recession, and it also provided for me a solid history lesson on the financial markets. Definitely would recommend looking into his book if you’re worried about where we’re heading in the next year. I first learned about him and his book on the Rich Dad Radio Show which his podcast episode aired in July I believe.

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