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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  • Account Closed
    Rental Property Investor · Greensboro, NC · Member since 2018 · 32 posts · 10 votes
    7y

    Yes. Recessions are a part of any expansion cycle, like low tides. My problem is with the unintended consequences that arise from governments trying to control the tides.

    1Reply
  • Account Closed
    Professional · Canton, MI · Member since 2016 · 296 posts · 230 votes
    7y

    @Jay Hinrichs @David Greiner Ann Arbor was actually comparatively solid during the recession. Probably the best place in the state to have owned during the downturn.

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Account Closed:

    @Jay Hinrichs @David Greiner Ann Arbor was actually comparatively solid during the recession. Probably the best place in the state to have owned during the downturn.

    there were times were big investment houses would not buy NPN in MI OH and a few other states.. they were toxic assets..

    we see a nice rebound now in Detroit and its nice to see that happen.. so wishing for a replay or recession that would cause real estate values to go down significantly so that a few can pick up deals.. Not sure that's a good thing for the market as a whole.. MI already has so much negative bias that its shaken off  I would think it best to keep it that way and keep growing and get back to being a place that is coveted. 

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  • David Greiner
    Rental Property Investor · Ann Arbor MI · Member since 2018 · 58 posts · 43 votes
    7y
    Originally posted by @Account Closed:

    @Jay Hinrichs @David Greiner Ann Arbor was actually comparatively solid during the recession. Probably the best place in the state to have owned during the downturn.

     Ann Arbor is it's own market. One of the best in country  University of Michigan is recession proof job provider.

    I'd of sold off all my real estate the last few years if I was in others markets.

    0Reply
  • Nicole Heasley Beitenman
    Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
    7y

    Who would hope for millions to suffer so that they can make a gain?

    3Reply
  • David Greiner
    Rental Property Investor · Ann Arbor MI · Member since 2018 · 58 posts · 43 votes
    7y

    @Nicole Heasley

    This is 100% right, but what if it's not a matter of if, but when? Might it be better to bite the bullet? It's only going to get worse the longer it is prolonged? My opinion is the monetary experiment has created an everything bubble and at some point in the reasonable future, we will have a depression comparable to the 30s.

    Or I'm wrong. But I suppose I wouldnt bet against me. Time will tell.

    0Reply
  • John Moorhouse
    Buffalo, NY · Member since 2017 · 64 posts · 85 votes
    7y

    I mean, kinda. If ill be able to buy properties at that time it would allow me to get some good deals. Or rather get properties at value not 30% higher like everything is right now.

    0Reply
  • Al Fernandez
    Member since 2019 · 20 posts · 11 votes
    7y
    Originally posted by @Caleb L.:

    Yes. Why?

    1) The markets are way to bullish!

    2) Interest rates are so low, it's already to dangerous!

    3) The market needs to be reset.

    Right now the interest rates are so low. And that drives corporate and consumer debt of the charts. There has been more debt taking out by corporations and consumers than ever before! And when a recession comes, and interest rates rise back up to 6%-10%, people will stop getting loans and have trouble paying them of. The banks will also collect as many mortgages as they can, to pay of their debt!

    Here's how it should work:

    5%-8% interest in good times, so the debt of corporations and people won't be so crazy in the good times. And a 2%-4% interest rate in bad times. That low interest will fuel more corporate debt, which is needed in recessions, in order for companies to stay alive. That would make sure American corporations would have a lot better chance of staying alive during recessions.

    But, right now we have it back words! And win the next recession comes, it will hurt because the FED can't lower the interest any more to fuel back up the economy.

    Result: Companies go bankrupt do to high interest rates because the FED can't lower them any lower. And we head into a really hard time! Not saying another depression will happen. I'm just giving facts. And the fact is this: The FED should raise the interest rate slowly up to about 7%-8% now. That gives them a lot of space to cut it in recessions. Which means that corporate debt will slow now, and in the recession, with interest rates low, corporations will be able to take out debt to stay alive.

    But, unfortunately, that's a pipe dream! :(

    Taking politics out of the picture the supposed game from the fed is to prevent an actual recession from starting by getting ahead of it. Once a recession starts its hard to slow it down which is dangerous since the rates are low already ( without much room avoiding negative rates). So their thought is to drop now , give the economy a little boost then start to raise again down the road. Kind of a one step at a time methodology (drop raise till you can raise raise ) . 

    IMO I think the issue is more with the cost of big purchases (cars,homes,etc) exceeding what the market will bare. In my area we have low inventory, low interest rates, strong local economy, and houses are not selling like they were previously with large inventory. That indicates to me that prices are likely to high. The problem will be if people can afford to adjust their prices and must sell. If many cant adjust their prices and have to sell then we got a problem and a market correction will be on the way.

    However, its a high stakes dangerous game and consumer debt will also determine if the feds one step at a time methodology will work. If lowering the rate doesn't work then the result will be the same anyways due to consumer debt. Not saying I completely agree or have 100% faith in their strategy , but I can see what they are trying todo.

    0Reply
  • Mark Braun
    Rental Property Investor · Monterey, CA · Member since 2014 · 23 posts · 11 votes
    7y

    @David Greiner....because everyone has a computer in their pocket.

    0Reply
  • Wayne Woodson
    Investor · Nashville, TN · Member since 2009 · 483 posts · 228 votes
    7y

    I want a concession, at closing.

    0Reply
  • Bhavin P.
    Rental Property Investor · Sunnyvale, CA · Member since 2019 · 7 posts · 3 votes
    7y

    @Bobby Stener. You would think so. Not always. Remember ben bernanki, and greenspan?

    0Reply
  • Javier D.
    Investor · FL · Member since 2017 · 266 posts · 220 votes
    7y

    @Cole Raiford

    I do not wish for a recession to happen. I had good friends/mentors commit suicide when the judgements started coming.

    I do not over extend myself with leverage as I do not like being at the mercy of interest rates, market pull backs etc.

    I have enough money to be able to hold during a catastrophic event for 6 months and really about 5 years unless its like a crazy 50% drop in rents or 50% vacancy or something insane lime that. Cash is king so I do appreciate this post to reflect on current risk.

    I think its bad juju to have the perception of hoping for a recession. I feel a little guilty I would be excited for the opportunities but imo its not worth the consequences to our society.

    Pigs get fed. Hogs get slaughtered.

    2Reply
  • Bobby Stener
    Rental Property Investor · SF Bay Area · Member since 2018 · 49 posts · 54 votes
    7y

    @Bhavin Palan. Yeah Greenspan made some mistakes but hindsight is always 20/20. But Bernanke (and Paulson) saved the US economy and did a great job!

    0Reply
  • Bhavin P.
    Rental Property Investor · Sunnyvale, CA · Member since 2019 · 7 posts · 3 votes
    7y

    @Bobby Stener- I don’t think bernanki and janet yellen did a good job. They reinflated the bubble without letting is deflate to the extent it was necessary. Bad companies did’t perish but left to survive like zombie companies that can barely make their interest payments on their debt.

    They failed to start raising rates in 2013-2016 when they should have, forcing powell to raise rates towards the end of the cycle, leaving us where we are. Not enough firepower with the FED with 2 to 2.5% rates. Its a different story that the FED will come up with creative things next time around (possibly negative interest rates - many european countries have this,etc).

    Resorting QE/ZIRP for extended periods of time and failing to bring back the economy to NORMAL times (without external stimulus) is not my definition of success. No one wants QE/ZIRP to infinity,but I guess we might not have a chance.

    I can go on, but i’ll stop there.

    0Reply
  • Bobby Stener
    Rental Property Investor · SF Bay Area · Member since 2018 · 49 posts · 54 votes
    7y

    @Bhavin Palan you are correct that yellen failed to normalize and tighten when she should have (and everything you said RE the consequences of her inactions are true as well) but bernanke certainly needed to remain dovish to get the economy back on its footing.

    1Reply
  • David Greiner
    Rental Property Investor · Ann Arbor MI · Member since 2018 · 58 posts · 43 votes
    7y
    Originally posted by @George Gammon:

    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 

     This is a really good point. But if this does happen interest rates will go way way up and will crush housing eventually. 

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  • Paul Papamarkos
    Succasunna, NJ · Member since 2017 · 104 posts · 12 votes
    7y

    @Mike Dymski lol so true

    1Reply
  • Brandon Hicks
    Investor · Avilla, IN · Member since 2013 · 796 posts · 769 votes
    7y

    @Bobby Stener

    I’m trying to decide if you’re being serious. The FED completely missed the subprime debacle.

    0Reply
  • Bobby Stener
    Rental Property Investor · SF Bay Area · Member since 2018 · 49 posts · 54 votes
    7y

    @Brandon Hicks so did 99.9% of everyone else!

    0Reply
  • Henry Kaldenbaugh
    Verde Valley Arizona USA · Member since 2018 · 115 posts · 98 votes
    7y

    @Al Fernandez, @Caleb L.  It's all about politics.  Say the Dems win 2020, then we will have our recession big time.

    1Reply
  • Nicole Heasley Beitenman
    Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
    7y
    Originally posted by @David Greiner:

    @Nicole Heasley

    This is 100% right, but what if it's not a matter of if, but when? Might it be better to bite the bullet? It's only going to get worse the longer it is prolonged? My opinion is the monetary experiment has created an everything bubble and at some point in the reasonable future, we will have a depression comparable to the 30s.

    Or I'm wrong. But I suppose I wouldnt bet against me. Time will tell.

    There's a difference between "I expect a recession to happen," and "I want a recession to happen." Of course it's a matter of "if" and not "when," and everyone's strategy should take economic downturns into account, but to hope for an event that's going to financially ruin millions of individuals for your own financial gain, which is the original situation posed in the thread, is a pretty craptastic thing to do. 

    0Reply
  • David Greiner
    Rental Property Investor · Ann Arbor MI · Member since 2018 · 58 posts · 43 votes
    7y

    @Nicole Heasley

    Feelings are very mixed. I dont have a straight answer because this is all very grey and not uniform.

    But consider this: if an alcoholic was sobering up and not feeling well as a result, would you give him a round of shots to make him feel better in the immediate or encourage him to fight the feelings of withdrawal and enter treatment?

    0Reply
  • Brian Ellis
    Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Cole Raiford:

    @Mike Dymski yea I feel like that is the tricky part Mike. I want lower prices to buy more properties, but I don’t want to lose a large equity position in my bay area primary residence. It’s hard to know what to pull for!!

    Keep in mind the only ones who really can take advantage of tough markets are either cash buyers or absolute PRIME borrowers.. newbies limited experience small portfolios  those folks will find it tough to find debt.

    Eactly, Im the "newbie" hoping for the market to stay strong. I benefit from the equity in my homes, if there is a recession then I wont have much to borrow from and my tenants may not pay rent on time!

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Brian Ellis:
    Originally posted by @Jay Hinrichs:
    Originally posted by @Cole Raiford:

    @Mike Dymski yea I feel like that is the tricky part Mike. I want lower prices to buy more properties, but I don’t want to lose a large equity position in my bay area primary residence. It’s hard to know what to pull for!!

    Keep in mind the only ones who really can take advantage of tough markets are either cash buyers or absolute PRIME borrowers.. newbies limited experience small portfolios  those folks will find it tough to find debt.

    Eactly, Im the "newbie" hoping for the market to stay strong. I benefit from the equity in my homes, if there is a recession then I wont have much to borrow from and my tenants may not pay rent on time!

    I am no way predicting this.. however the fact remains during a deep recession.. not all rentals perform.. Look at PHX  Vegas Parts of Georgia central CA  MI OH.. 

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  • Brian Ellis
    Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Brian Ellis:
    Originally posted by @Jay Hinrichs:
    Originally posted by @Cole Raiford:

    @Mike Dymski yea I feel like that is the tricky part Mike. I want lower prices to buy more properties, but I don’t want to lose a large equity position in my bay area primary residence. It’s hard to know what to pull for!!

    Keep in mind the only ones who really can take advantage of tough markets are either cash buyers or absolute PRIME borrowers.. newbies limited experience small portfolios  those folks will find it tough to find debt.

    Eactly, Im the "newbie" hoping for the market to stay strong. I benefit from the equity in my homes, if there is a recession then I wont have much to borrow from and my tenants may not pay rent on time!

    I am no way predicting this.. however the fact remains during a deep recession.. not all rentals perform.. Look at PHX  Vegas Parts of Georgia central CA  MI OH.. 

    Exactly.. if I had a good amount of cash to play with then I would love to see prices drop, but the reality is I don't. I need my rentals to perform, otherwise im in trouble.

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