Do you want a recession?

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Do you want a recession?

Cole Raiford
Rental Property Investor · Gulfport, MS · Member since 2018 · 113 posts · 133 votes

There are always posts about whether or not a recession is coming, or whether or not someone should wait for one to invest. Instead of that question, I’ll ask .... do you want a recession to occur in the next 12 months? Are you hopeful for one and positioned to take advantage of it, or are you over extended and fearful of one?

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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
7y

BP is the only place where you will find real estate investors wishing for a reduction in their property values.

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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    7y

    Personally, I think it is the height of arrogance to believe oneself so adept at knowing where prices are and where they are going that one wishes for a recession. Having a reasonable ear to the ground and thinking you're buying at a good price is different from wishing it to happen, since you don't have any way of knowing when you're at the bottom or when you've reached the top. I suspect most people who think this way have a recency bias, with a very long real estate appreciation curve, and forget that there's lots of places where you could point to stagnant prices for 20 years or more (and some of them are still out there now). 

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  • Account Closed
    Rental Property Investor · Kearney, NE · Member since 2017 · 12 posts · 9 votes
    7y
    Everyone has their perspectives but I've found it's better when everyone is winning, especially for investors with little to no track record. When the recession comes good luck with funding your deals. Better to jump in now while the money is cheap and try to find a fundamentally sound deal where you can succeed no matter the market conditions
    7Reply
  • Albert Ng
    Rental Property Investor · San Jose, CA · Member since 2015 · 401 posts · 221 votes
    7y

    No one want a recession. And while there are talk about “overdue for a recession”, they have been talking for over 3 years now. Eventually, they will be correct, but no one know when.

    2Reply
  • Account Closed
    Eastern Michigan · Member since 2018 · 83 posts · 144 votes
    7y

    When it comes to real estate I think it is needed.  I've been looking for a primary home for the past couple years in Detroit Metro and the housing prices are unreal.  Just try to find a nice middle class home in a good school district out here that is actually affordable--- you can't.  There is no way the economy and peoples incomes can keep up with how high the house prices have gotten and it needs to slow down a little. 

    2Reply
  • Nicolas Casebolt
    Member since 2018 · 5 posts · 7 votes
    7y

    @David Tsedaka ok.

    0Reply
  • Bill F.
    Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
    7y
    Originally posted by @Frank Jiang:
    Originally posted by @Joe Splitrock:

    Why would someone would want a recession? That most certainly means job loss, increase in crime, property devaluation, stock market instability and everyone will lose net worth.

    I know those of you who want it to be like like 2010 again are thinking "buying opportunity". What you all forget is the hardship that so many people had to endure during that period of our history. 

    There is also some naivety when people believe they would seize a buying opportunity. In economic hard times, there are very few real estate buyers because fear and economic despair holds most people back. Only people with a heavy cash position can truly profit from a recession or depression, but they take a major risk to get that reward.

    Just a moderators reminder too, please leave politics out of this and any discussion. 

    To paraphrase The Big Short, for every 1% the unemployment figure goes up, 40,000 people die.  

    This! Anyone that said "Yes, I wan a recession" should watch the scene and think about the second and third order effects of the thing they think will be so stupendous for them.

    I'd be willing to bet that most people who have said they want a recession are looking the world thorough their rear-view mirror; thinking that they have the answers to the test since they know what happened in 2008. The next recession will be nothing like 2008, it will have different causes, impact different parts of the economy in vastly different ways.

    Wishing for a recession is like wishing for a traffic accident: we all know they happen, but we don't need to activity root for them...

    8Reply
  • Eric Carr
    Real Estate Broker · Los Angeles, CA · Member since 2017 · 658 posts · 293 votes
    7y

    I don't wish for hardship for anyone. But cycles happen in all aspects of life and with the case of recessions, they are healthy and necessary. The most important thing to remember in any circumstance, is that you must be adaptable. 

    1Reply
  • Caitlyn Hummer
    Turnkey Investment Provider · Columbus/Dayton/Cincinnati, OH · Member since 2018 · 79 posts · 41 votes
    7y

    A recession? No. It's never good for anyone. In my opinion, even solid investors can fail during a recession. Yes. There are opportunities in a recession but if no one is buying the product you're putting out, what good is a great deal that you may find if you can't turn a profit? 

    A correction? YES! I am in favor. In my market, it's definitely a sellers market and making it nearly impossible for investors to compete because of inflated prices. Profits are definitely more slim. A more stable market, where there are just slightly more buyers than sellers would be ideal. Right now, we're WAY over saturated with owner-occupied buyers AND investor buyers. Of course, every market is granular. Can't compare NYC to Dayton, OH. Can't even compare Cleveland, OH to Dayton, OH. They're different and are all in different phases of the real estate market roller coaster that inevitably has peaks and valleys.

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    7y
    Originally posted by @Andy Brown:

    @JD Martin

    Agreed. And I'm always amazed that there is this sentiment on BP that if a recession comes it will not negatively affect us--only "them". Like the whole nation will have layoffs and financial desperation to such an extent people are giving houses away but somehow our lives as "enlightened" real estate investors will be untouched financially. As much as I love BP, I've spent enough time on here to realize there's a fair bit of chest-pounding and most people are not remotely prepared for such an event. But let these conversations serve as a good reminder for all of us to get our houses in order--in every sense of the term.

    There is an old saying, a recession is when your neighbor loses his job, a depression is when you lose your job. 

    1Reply
  • Pat L.
    Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
    7y
    Originally posted by @Joe Splitrock:
    Originally posted by @Andy Brown:

    @JD Martin

    Agreed. And I'm always amazed that there is this sentiment on BP that if a recession comes it will not negatively affect us--only "them". Like the whole nation will have layoffs and financial desperation to such an extent people are giving houses away but somehow our lives as "enlightened" real estate investors will be untouched financially. As much as I love BP, I've spent enough time on here to realize there's a fair bit of chest-pounding and most people are not remotely prepared for such an event. But let these conversations serve as a good reminder for all of us to get our houses in order--in every sense of the term.

    There is an old saying, a recession is when your neighbor loses his job, a depression is when you lose your job. 

    Back in my day !!!

    0Reply
  • Account Closed
    Financial Advisor · CA · Member since 2012 · 128 posts · 76 votes
    7y
    Originally posted by @Caleb L.:
    Originally posted by @Bobby Stener:

    @Caleb L. You do make a lot of sense, however, you have to understand the people on the fed are ALOT smarter than us here on this board and they know what they are doing.

     True. Although, you don't have to be smart as a person on the FED to understand economics. And to see and analyze the corporate industry to know that we're in HUGE trouble.

    The FED people are trying to keep to economy going strong, which it is to the average person. But, if you look inside the big corporations financial statements, 85% are in trouble if a recession comes!

    I look at America as a huge corporation. The president being the CEO, etc. Currently, America is loosing about $200,000 a year per person! Thanks to social security, wellfare, etc. As a matter of fact, the "rich" pay about 80% of all social security, so America has to only pay 20% of it, and we're still loosing money!!

    I think you get the point. America is one of the biggest companies, so to speak, in the world, and one of the most financially unstable.

    Good nations like Germany can afford to have free college and such because their financially stable.

    Not to sound condescending, but political parties like the Democratic party want to have free this and free that, high wages and the whole thing! Me too! BUT, we don't have the money as a nation! And all of these free plans for the public will run America into the dirt!

    Don't get me wrong! I feel bad for the people and companies that get hurt in recessions. But, it's the punishment that America MUST pay in order to reset itself, and after ten years, find ourselves in the same situation! Some how, Americans don't learn from the past mistakes of the economy?

     I believe that in 1871 the US actually did become a corporation.  Our presidents are titled presidents coinciding with this.

    0Reply
  • Ryan Shimiaie
    Lender · Long Island, NY · Member since 2019 · 20 posts · 11 votes
    7y

    Any change in the market that means more closed deals, im behind that. 9% rates all day

    1Reply
  • Ned J.Pro Member
    Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
    7y
    Recession...NO....slow down/decent sized correction....HELL yes..... The bigger the rocket, the bigger the blast when it explodes.....all good parties come to an end.....a smooth slow down is WAY better than a crash
    2Reply
  • Ciro Affronti
    Investor · Scottsdale, AZ · Member since 2014 · 52 posts · 23 votes
    7y

    I don't think wishing for a recession is the right way to look at this. A recession means our economy is retracting, which likely would result in job losses, rises in unemployment, and a lot of other negative impacts on everyday Americans. 

    What I do wish for is for cap rates to rise and for the real estate investment market to become more affordable. I think we are all just looking for more opportunities to find deals that make financial sense and be able to grow our portfolios!

    1Reply
  • Brandon Ramsay
    Halifax NS · Member since 2019 · 48 posts · 24 votes
    7y

    @Cole Raiford people never know when it will come. It can't be predicted but as for myself. I don't wish to see a recession. It can affect a lot of people in bad ways.

    My area itself is in a major upswing that is just starting to pick up momentum and looks like it will be in one for quite a few years but that doesn't mean you can't find deals. Think outside the box. Think on how you can solve the problem a distressed seller is going through and be sincere. People don't want to be sold but they want to buy what they want.

    2Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    This is an interesting, yet meaningless, discussion... 

    A more meaningful question would be - are you prepared for the next recession? 

    8Reply
  • Anthony Rosa
    Rental Property Investor · New York City · Member since 2019 · 703 posts · 538 votes
    7y

    No, i don't want a recession. If it does hit i don't think 2008 would repeat because lending regulations are much stricter today...But, its not only about RE. The stock market takes a hit, people lose jobs, borrowing becomes harder, times become tougher, may have to settle for charging less rent, etc... There are still plenty of locations that haven't recovered from 2008 and probably never will...Nobody wants it to be worse & everyone here wants their tenants to keep working & paying rent, right?

    For those who cant wait for a recession to hit why?? I can understand if money is no object and you are liquid rich but that's not typical. If the market does cool down a bit id buy for appreciation but by no means do i want a full blown recession. 

    1Reply
  • George Gammon
    Flipper/Rehabber · Las Vegas, NV · Member since 2016 · 174 posts · 251 votes
    7y

    I'm afraid people are making a huge mistake of seeing the next recession as binary, if x happens then y happens because they're inversely correlated.  In other words, if a recession hits (x) the value of my cash increases or housing prices go down in terms of dollars (y).

    While this is possible, it's not guaranteed.  History shows us steep recessions and depressions rarely occur for reasons people expect and rarely unfold the way people imagine.  They have a saying "the market will do what ever necessary to hurt the most amount of people." 

    Let's first look at a very meaningful chart of government deficits.  Notice deficits usually rise during recessions and contract during booms, and never before in US history, have deficits been this high (4.6% of GDP) without being in a recession.

    This means the US is currently running recession level deficits, only seen twice since 1950, at a time when the economy is "booming" and unemployment is near an all time low, as Trump reminds us via twitter by the hour.  

    And remember the US is at almost 110% debt to GDP, a feat never accomplished outside a world war and not seen since the early 1940's.  This is extremely important because a war is a one time expense, like buying office furniture.  The deficits now aren't one time expenses, they're recurring, like payroll. 

    Going back to the chart please notice the last recession the deficit increased by approx 9%.  

    So what happens when we're currently running a 4.6% deficit in a good economy, with very low unemployment, and the next recession hits?  Above 50% probability the deficit goes north of 10% of GDP.  But wait, debt to GDP is already at levels only seen in war when it's a one time cost.  

    What happened to the national debt during/since the last recession when we've run deficits between 10% and 2%?  Here's another chart.  

     The national debt more than doubled.  So what would the national debt do in the next recession if deficits stayed consistently at or above 10%.  The debt would likely double every 5 -7 years...optimistically.  

    What does this have to do with the original question, "would you like to see a recession?" 

    It has more to do with everyone's answer 1. No I'm not a masochist or 2. Yes, I'd like a recession so my cash buys more house.

    But what if the next recession wasn't binary?  What if there's a 3rd possible outcome? 

    Let's look at the 1970's and stagflation.  This was an inflationary recession, high inflation with high unemployment.  American's cash lost 50% of it's purchasing power in 5 years.  The US had to issue "Carter Bonds" (bonds issued in swiss francs) because no one wanted bond's denominated in the pariah currency of the time...the US dollar.  

    What happened to housing prices?  See chart 

    Even adjusted for inflation, they rose.  

    I'm by no means suggesting you run out and buy properties now because there's no downside.  Far from it.  What I am saying is with staggering national debt, huge deficits (in a "good" economy), and the only out for the government being inflation, in the next recession, 1970's inflation has a lot of tailwind.  

    And if you're holding cash, waiting for the next recession, you'll get crushed.  Imagine loosing half the your money in 5 years waiting for home prices to come down.  

    In an inflationary recession cash is far from king.  

    I think I'm one of the very few investors on BP that look at REI from a top down perspective, so just wanted to provide some food for thought for the rest of the community who looks at things bottoms up.

    George 

    9Reply
  • James Barry
    Real Estate Broker · Houston, TX · Member since 2016 · 27 posts · 15 votes
    7y

    Technically a recession is consecutive quarters of declining GDP growth. Things such as money supply, new construction, market rents, etc, are the principles to be concerned with.

    1Reply
  • Charles Kao
    Specialist · Grand Rapids, MI · Member since 2016 · 1k+ posts · 611 votes
    7y

    @Cole Raiford

    In honesty yes, which is very selfish because I saw the last recession wreck alot of families. At the same time I want to see my investments and portfolios tested and we have stayed very liquid in anticipation of one. Alot of people

    have money available to them from

    investors and banks so we'll see how much that dries up.

    0Reply
  • Nicole Wood
    Investor · Bath, NY · Member since 2015 · 149 posts · 44 votes
    7y

    @Cole Raiford I would say yes. For cheaper prices...but as a newer investor I'm also fearful of recessions.

    0Reply
  • Michael H.
    Rental Property Investor · Houston, TX · Member since 2017 · 144 posts · 42 votes
    7y

    @Cole Raiford bring it on!

    0Reply
  • Corey Russo
    New York area · Member since 2019 · 5 posts · 1 vote
    7y

    @Mike Dymski wouldn't a recession be good for investors trying to make their way into the market? Low prices and over the years the equity climbs

    0Reply
  • Brent Crosby
    Rental Property Investor · Farmington, UT · Member since 2018 · 171 posts · 148 votes
    7y

    @Cole Raiford Yes, absolutely. I’d say I’m getting into position however I need about another year to wrap up completely what I have going. I’d gladly take the dip in net worth in the short term to buy properties with better returns. Short term pain and long term gain.

    I honestly feel that with where returns are now in most places investing in real estate has become far too risky if you are not cash flowing. A lot of people on here are essentially picking up pennies in front of what may turn out to be steamroller.

    0Reply
  • Angelo Mart
    Professional · Parsippany, NJ · Member since 2013 · 384 posts · 262 votes
    7y

    You have to play the market at the current time. There are still deals in some areas just not priced as low as before. When the Great Recession hit I was looking into purchasing REO sales every other week but could not get money and sat on the fence. Now I have access to tons of lenders and no deals. This is how the game works. Find a deal now and lenders will be knocking at your door. There are always challenges in the investment business regardless of the time. I purchased my properties with good cash flow assuming that if a major recession hits and my property values drop substantially I will still have long term income while being locked into a solid rate. However, I am seeing major over inflation in markets that were Historically distressed with values exceeding the 2005 bubble. Something is not right and a market correction could happen as the affordability is no longer available in lower income areas with more people opting to rent vs own.Long terms historically low interest rates have pumped too much air into a bubble that has the potential to burst

    1Reply
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