Will there be another recession?

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Will there be another recession?

Brie SchmidtBusiness Member
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes

Are we going to have a recession this year?  Historically, every time we see low unemployment it is followed by a recession

Now we hit a 17 year low for unemployment rate, so what does that mean?

So will it happen?  What will be most effected?  Is it going to be another housing crisis?  or will it hit stocks?  manufacturing? 

I don't know the answers, but would like to learn what others think is going to happen, if it does.  

#BPDebate

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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
8y

100% chance we hit a recession at some point, but who know when that will be. We are currently in the 2nd longest bull market ever....however it would need to run almost 5 more years to be the longest ever. 

Prices will soften when we hit a recession, but nothing like we saw a decade ago. I believe that was a once in a lifetime event.

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  • Russell BrazilBusiness Member
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    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    8y

    100% chance we hit a recession at some point, but who know when that will be. We are currently in the 2nd longest bull market ever....however it would need to run almost 5 more years to be the longest ever. 

    Prices will soften when we hit a recession, but nothing like we saw a decade ago. I believe that was a once in a lifetime event.

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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y

    @Russell Brazil - Great point!

    I find it hard to imagine the real estate market will get hit as bad as it did before. But I also get concerned with all the risky lending I am seeing out there. I am hearing of some high LTV stuff and banks allowing seller seconds and people just treating money like it comes out of a water fountain

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  • Russell BrazilBusiness Member
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    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    8y
    Originally posted by @Brie Schmidt:

    @Russell Brazil - Great point!

    I find it hard to imagine the real estate market will get hit as bad as it did before. But I also get concerned with all the risky lending I am seeing out there. I am hearing of some high LTV stuff and banks allowing seller seconds and people just treating money like it comes out of a water fountain

    I closed a deal last month at 100% borrowed including closing costs. (Was not a VA). My client actually got paid $450 at settlement. Another lender I know of just came out with a similar product. So yeah, the pendulum has swung from fear back to greed.

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  • Ghazey Aleck
    Grand Rapids, MI · Member since 2016 · 19 posts · 20 votes
    8y

    The economy will always have cycles and there will be some sort of recession in the coming years.  Nobody can say for sure when (maybe more informed people have a better idea of when or how severe).  But I don't believe it's going to be at all similar to 2008 and I'm personally not waiting for some massive correction to buy more properties.

    5Reply
  • Malcolm Douglas
    Investor · Chicago, IL · Member since 2016 · 39 posts · 33 votes
    8y

    Take it for what it's worth, mainly a prediction, but the investment firm I work at seems to think recession is likely late 2019/early 2020 with stock market seeing declines before that.  Keep an eye on the yield curve flattening as short term rates begin to equal long term, this usually is an accurate predictor of economic slowdown.

    This is guess but I think stocks will be hit hard as a lot of new wealth was put into the stock market over the last cycle and the advent of ETF's has allowed investors to buy large pools of stocks.  When the next panic hits, and people rapidly pull money out of those ETFs, it could accelerate declines as those ETFs are forced to sell off stocks in order to pay those redemptions. Machine trading can also magnify it. We saw a 10% decline in February in a matter of days/week.  What will that decline look like when there's a real panic?

    It's for reasons like that, and this, that I have been shifting money out of stocks and into real estate. 

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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y

    @Malcolm Douglas - I have no basis for my belief, but I also feel stocks will take a big hit.  Thanks for sharing that graph, it was helpful in understanding market data and trends.  

    Stocks is not an area of expertise for me, but I saw on the news this morning that Rihanna caused snapchat to lose $800 million in value with a tweet.  As a self proclaimed control freak I can't stomach investing heavily in stocks and letting outside forces dictate my wealth 

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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y

    @Russell Brazil - that is very concerning.  I got a call from an investor yesterday I know who wanted my eyes on a property he recently won at auction.  It was listed for $580k at auction and he was the winning bid at $810k

    There is this "ebay mentality" of "winning" sometimes.  My step dad sells stuff on ebay in his retirement years.  He says he will list something at $8 in an auction with a buy it now at $10 and every time it gets bought for $12 in the auction.  People could buy it now for $10 but the excitement of "winning" causes them to overpay.

    So I started looking into this auction property, and saw it sat on the market for a year at $725k and nobody bought it.  But then it goes to auction and gets bid even higher.  I see it all the time, people want the "win" 

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  • Joseph M.
    Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
    8y
    Brie Schmidt That’s interesting , I had never heard that stat before regarding low unemployment . Real estate and stocks both seem pretty overvalued now . RE especially in L.A .. I saw someone posting about an “off market” apartment deal at $400,000 a unit .. for an apartment building in the San Fernando Valley ! Interesting about Snapchat ... seems they can’t catch a break .. the other day Kylie Jenner made their stock value go down over $1 billion . Snapchat definitely seems like the type of stock that could crash hard in a downturn .
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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y

    @Joseph M. - I just don't understand how a companies value can change that drastically that quickly.  Why was it that high in the first place?  My small brain can't grasp the concept that something nobody actually needs is worth so much

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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y

    @Chris Mason - how has the rate increase effected business? 

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  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    8y

    Keep in mind it is also entirely possible regions experience recessions vs entire country. There was a time in the 70s the nation was in massive recession but due to mainly defense spending SoCal was still very bullish and prices doubled while the rest were in a tail spin, especially places like NYC were looking very bearish. That is not always but if we just look back to last recession and check prices in the oil and gas regions ($100 barrel)  one might see these locales were not affected as much or not at all as I recall. 

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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y

    Very good point.  The housing market crash effected different areas differently.  Tech vs oil vs banking could be isolated in terms of geography 

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  • Carlos Zapata
    Investor · Miami, FL · Member since 2015 · 363 posts · 143 votes
    8y

    @Brie Schmidt    I am far away to be an expert on this topic, I follow Robert Kiyosaki, the Real Estate Guys, Peter Schiff, Simon Black, they know a lot about this topic, All the countries the United States included have economic cycles, we are right now at the point where guidelines for loans are getting easier, prices are almost at the same price than 2005 2006, expect the best but be prepared for the worst

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  • Chris MasonPro Member
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    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    8y
    Originally posted by @Brie Schmidt:

    @Chris Mason - how has the rate increase effected business? 

     Purchase and cash out refinance transactions: no impact.

    Rate/term refinance transactions: down a lot. 

    The mortgage guys really hurting are the ones that built their practice on the low hanging fruit house of cards of artificially low rates, which is rate and term refinance business from a call center cubicle thingie. It used to be they could just pitch folks on "Save $45/mo!" But now it's "Save $45/mo by switching to an adjustable rate mortgage!" - I personally have gotten more of that pitched to me in the last few months than ever in the past (has anyone reading this noticed a spike in the junk mail and cold calls?). I play along when cold called by the refi call center guys, probably get my credit run once every 3 months while playing along. :P Someone even pitched me on some wonky 1/1 ARM where my rate would drop to 0% for 12 months, then jump to 5.5% unless I refinanced (which naturally they would be happy to help me with) at the 11 month mark. I wanted to see what an LE for that looks like! Unfortunately I didn't get to the formal disclosures because when they called to get my SSN to run my credit before disclosing it, I accidentally picked up the phone and said "Bay Equity Home Loans, this is Chris," was asked to repeat what I said... then the processor cursed and hung up on me.

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  • Joe SplitrockPro Member
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    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    8y

    @Brie Schmidt low unemployment isn't a leading factor for a recession, it just so happens that unemployment goes higher in a recession, so the period leading up to a recession ends up looking very low. 

    Of course as @Russell Brazil stated, there will always be another recession it is just a matter of when.

    I know some people have the theory, "we are about due" but that isn't how a recession decides to show up. All the factors that play in are extremely complex. We have an interesting mixture of forces at play right now. 

    The tax reductions are a major stimulus, which has yet to really kick in. Corporations will be repatriating overseas funds and expanding, which will be a positive impact over the coming months and even years. 

    Rising interest rates will cool the housing market some, but that isn't necessarily a bad thing. Banks are pushing to loosen lending standards. They will push harder as the rates go up, because they will need more customers.

    Stock market has been on an emotional roller coaster, but the fundamentals are pretty good. People are making money right now jumping in and out which is part of what leads to volatility.

    The metal tariffs could affect costs on many goods and there are partner trade ramifications. Nothing has happened yet, so it is mostly fear mongering and emotional reaction at this time. It could turn out good or bad.

    Of course we have a colorful President who is the wild card in all this. He is very pro job and pro business, which like him or not, is good for the economy. On the flip side he could put his foot in his mouth and ignite a economic landslide.

    The worst catalyst for a recession is always the unseen threat that seemingly comes out of nowhere. No way to really predict that. Student loan crisis, war, oil crisis, political turmoil, natural disasters, are just a few things that can push us the wrong direction.

    As far as low unemployment, I was in the work force back in the late 1990's. As companies struggled to find workers, people came out of retirement or took on second jobs. Wages rise because companies are forced to be more competitive. I was at Aldi grocery this week and they were hiring cashiers for $14.31 per our starting. That doesn't look like pending economic disaster to me, but who knows what the future holds.

    I am interested to hear what others have to say. I don't have a crystal ball, just an opinion like everyone else.

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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Echoing what Malcolm Douglas said the family members I have that work in finance/investments predicts a recession sometime in late 2019/first half of 2020. Obviously this can’t be known but as it’s their job to think of these things (as part of managing billions of dollars), I like to think they know more about this stuff than I do, but they also can’t predict the future. I personally think there will be a mini recession sometime in that time frame fove or take a year. I think this year will be good and most of 2019 will be good, but beyond that it’s hard to say. The fed will likely keep raising rates most of this year and next year. We could easily be seeing 7 percent interest rates for residential investment properties in the next 18-24 months. I think this could have a fairly large impact as people have gotten used to 4-5 percent interest.
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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y

    @Chris Mason - I feel like I have seen way more ads / junk mail for "free money" which is why I am starting to get concerned.  Reminds me of the 80/20 interest only days (why was that ever considered responsible)

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  • Sam B.
    Investor · Indianapolis, IN · Member since 2015 · 270 posts · 217 votes
    8y
    Originally posted by @Brie Schmidt:

    @Joseph M. - I just don't understand how a companies value can change that drastically that quickly.  Why was it that high in the first place?  My small brain can't grasp the concept that something nobody actually needs is worth so much

    Snapchat is the exception for stocks, not the rule.

    It was high because people are stupid.

    Last I checked they lose millions every year.

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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y

    @Joe Splitrock - All very good points.  It could be nothing we expected.

    Cost of goods increase, wages increase.  Soon my beloved McDouble will cost me $5

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Russell Brazil:
    Originally posted by @Brie Schmidt:

    @Russell Brazil - Great point!

    I find it hard to imagine the real estate market will get hit as bad as it did before. But I also get concerned with all the risky lending I am seeing out there. I am hearing of some high LTV stuff and banks allowing seller seconds and people just treating money like it comes out of a water fountain

    I closed a deal last month at 100% borrowed including closing costs. (Was not a VA). My client actually got paid $450 at settlement. Another lender I know of just came out with a similar product. So yeah, the pendulum has swung from fear back to greed.

    but we see it on BP all the time folks talking about how do I get into deals with no money.. LOL..

    JUst hopefully these new 100% financing loans are being underwritten with a fine tooth comb.

    now if we get back to stated and 100% then we are heading down the exact same path.

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  • Chris MasonPro Member
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    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    8y
    Originally posted by @Brie Schmidt:

    @Chris Mason - I feel like I have seen way more ads / junk mail for "free money" which is why I am starting to get concerned.  Reminds me of the 80/20 interest only days (why was that ever considered responsible)

    It's because the layoffs of all the folks that have just been doing "refi to drop FHA PMI!" mortgages haven't happened yet. They will if rates keep going up. But until all those people (marketing departments, etc) are fired, they are promising more and more outlandish stuff to suck another quarter or half year of employment out of the era of historically low rates.

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  • Bart H.
    Dallas, TX · Member since 2016 · 1k+ posts · 745 votes
    8y
    Originally posted by @Brie Schmidt:

    Are we going to have a recession this year?  Historically, every time we see low unemployment it is followed by a recession

    Now we hit a 17 year low for unemployment rate, so what does that mean?

    So will it happen?  What will be most effected?  Is it going to be another housing crisis?  or will it hit stocks?  manufacturing? 

    I don't know the answers, but would like to learn what others think is going to happen, if it does.  

    #BPDebate

    I think we will hit the wall here in the next 12-18 months.

    What I think will happen is a spike in interest rates and maybe some inflation.  Somehow I think we are near the end of the  golden era of low interest rates, and inflation might well be the thing that slows down the economy and sends us into an recession.

    I don't think we will see a huge crash like the last one.  If anything being invested with long term debt might actually be the best strategy to go into the next downturn.  

    2Reply
  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    8y

    I don't think this year. The unemployment numbers exclude too many people who've left the workforce...

    3Reply
  • Bart H.
    Dallas, TX · Member since 2016 · 1k+ posts · 745 votes
    8y
    Originally posted by @Ben Leybovich:

    I don't think this year. The unemployment numbers exclude too many people who've left the workforce...

    Absolutely correct.  The Labor force participation rate has remained flat in the face of demographics that suggest it should be declining.  In other words people are coming back into the labor force, and the unemployment rate has been flat.  All with little if any wage growth.  The low wage growth suggests that there may be still some slack in the labor market as otherwise disaffected workers reenter the labor market.

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  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Sam B.:
    Originally posted by @Brie Schmidt:

    @Joseph M. - I just don't understand how a companies value can change that drastically that quickly.  Why was it that high in the first place?  My small brain can't grasp the concept that something nobody actually needs is worth so much

    Snapchat is the exception for stocks, not the rule.

    It was high because people are stupid.

    Last I checked they lose millions every year.

    Not just millions, hundreds of them each quarter. Them puppy filters are well worth it, tho :)

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