Concerned about economic slowdown?

6 Replies

I am generally NOT concerned with the real estate market - in fact I think I would appreciate a little cool down. We are shorter in supply and higher in demand this year so far than we have been before. I have recently posted statistics for Milwaukee 2019 YTD - both DOM (days on market) and inventory for sale are down - again - over last year. In particular in the lower price points below 250k.

Looks like the world economy is starting to slow down a bit, bond yield curve inversion in March suggests the fed should cut rates to support weakening investor faith in the economy, global shipping is down etc. - so what could that mean for real estate? Here is some info from a very credible source (KCM) about what happened to US property values in the last 5 RECESSIONS.

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Last week, realtor.com released a survey of active home shoppers (those who plan to purchase their next home in 1 year or less). The survey asked their opinion on an impending recession and its possible impact on the housing market.

Two major takeaways from the survey:

  • 42% of home buyers believe a recession will occur this year or next (another 16% said 2021)
  • 59% believe the housing market would fare the same or worse than it did in 2008
Why all the talk about a recession recently?

Over the last year, four separate surveys have been taken asking when we can expect the next recession to occur:

  1. The Pulsenomics Survey of Market Analysts
  2. The Wall Street Journal Survey of Economists
  3. The Duke University Survey of American CFOs
  4. The National Association of Business Economics

70% of all respondents to the four surveys believe that a recession will occur in 2019 or 2020 with an additional 18% saying 2021.

However, we must realize that a recession does not mean we will experience another housing crash. According to the dictionary definition, a recession is:

“A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”

During the last recession, a dramatic fall in home values helped cause it.

However, according to research done by CoreLogic, home values weren’t negatively impacted as they were in 2008 during the previous four recessions.

Home price change is the last 4 recessions:

Homebuyers Shouldn’t Worry About 2008 All Over Again | Keeping Current Matters

During the four recessions prior to 2008, home values depreciated only once (at a level that was less than 2%). The other three times home values appreciated, twice well above the historic norm of 3.6%.

Bottom Line

If there is an economic slowdown in our near future, there is no need for fear to set in. Most experts agree with Ralph McLaughlin, CoreLogic’s Deputy Chief Economist, who recently explained that there’s no reason to panic right now, even if we may be headed for a recession.

@Marcus Auerbach Thank you for posting this. The fear and panic that is being associated with any hint of a recession baffles me because as you pointed out, it often doesn't indicate much, if any, disturbance in the real estate market.  I'm not sure if it's because the last recession had such an impact or because many people on the site haven't really looked up how real estate has fared in previous recessions, but so many seem to equate recession with real estate crash. Thank you for shedding some light on the difference. 

@Scott Passman emotions and money don't mix well, so we have to look at data. I also think that many overreact about the potential impact. Landlords are typically doing very well, while forclosures are on the rise. And while it's more difficult for flippers to sell the final product, it is much easier to find deals, so bottom line it's a wash.

Economic corrections and housing corrections are two different things.

I don't get concerned about either one because I can't control them.  We just need to be smart in how we invest (at any point in the cycle).

@Mike Dymski says it well.  We can’t control it, so why bother?

The importance has always been in making sound deliberate decisions each investor can tolerate based on their needs/tolerance for fluctuations.

Perhaps much of the lingering fear is due to a recency bias that places more emphasis on the last recession and how it was associated with real estate?

@Craig Tripp I would say you are right - emotional scars. And it's the only recession Millennials can remember.

Well said @Mike Dymski ! Some people ask me if they should wait until the market cools. I tell them it's better to do your first deal in a tough market, it will prepare you to take advantage of lower price (if we shall ever see that). 

If you don't take a step now, you will not have the guts to do it, when everyone is talking how bad the market is. 

@Marcus Auerbach I like the aggressive approach and recommendation to get something done in a tough market.  You’re 100% right, it’ll prove invaluable on the deals after that.

Chart a course, put the blinders on if necessary, and don’t let outside talk sway or influence if the numbers make sense. 

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