Setting Record Straight on Recessions

4 Replies

There seems to be a lot of misconceptions about what a recession means and especially for real estate investors. Yes, a recession is coming. But by nature of a cyclical economy it is either always coming or here already. It may happen next year, in 5 years, 10 years etc. But 2008 was a once in a lifetime anomaly and it seems like the results of that crash are being presumed for any future recession. Keep investing, but do so wisely and always look to mitigate risk. See below for a nice summary of the housing market over the last 5 recessions:

Housing in previous recessions

It’s somewhat counter-intuitive, but recessions don’t necessarily mean bad things for the housing market. In fact, they usually don’t.

ATTOM Data Solutions, a leading real estate data provider, looked at home prices during the five recessions since 1980 and found that only twice—in 1990 and 2008—did home prices come down during the recession, and in 1990 it was by less than a percent. During the other three, prices actually went up.

“Housing is such a basic need that it won’t necessarily do well, but [it will] at least truck along,” said ATTOM’s Daren Blomquist. “It may flatten out a bit, but people still need somewhere to live, so that basic need is going to cause how the housing market—and particularly home prices—to continue to go up.”

ATTOM data also show that rents are even less impacted by a recession. During the housing bust in 2008, the average fair market rent for a three-bedroom property, as calculated by the U.S. Department of Housing and Urban Development, rose at a steady clip even as home prices cratered. Rents likely rose as homeowners who had to go into foreclosure during the crisis added new demand for rental housing.

I agree, we have a major recency bias in that we expect the next recession to hammer real estate as hard as it did last time. That's certainly a possibility, but historically recessions don't always go that way. 

ATTOM's data, however, seems to have the problem of being an average of the whole market. Real estate markets are hyper local. If the market as a whole goes up, there can still be areas in decline. 

@Scott Passman Thanks for sharing this. Super valuable.

I would add that the fear of a pending recession should not take anyone out of the game. This is the time to double down on relationships to be in pole position when prices reset.

Top three relationships to work on:

  1. Major deal sources - brokers, owners, and influential third-parties
  2. Capital sources - friends and family, centers of influence, and lenders
  3. Execution team - operators, contractors, attorneys, accountants, etc.

Dig the well before you're thirsty.

I would be hesitant to say 2008 was an anomaly or once in a lifetime event however I’m not going to live in fear everyday . There’s a real chance we could experience an economic collapse . Everyone looks at the graphs and models over the last so many decades and comes to a conclusion of what we saw ..well that might not illustrate how bad things can actually get . We had an administration not too long ago that added ten trillion in debt . That will have to be reckoned with and hyperinflation at this level has not been seen in the past . We are printing insane amounts of money and that will come to a head eventually and when it does the dollar may really take a hit . Hope for the best prepare for the worst 

@Scott Passman

Interesting information Scott. Thanks for sharing. Here's a good YouTube video by Patrick Bet David on recessions as well (this guy's videos are incredible to listen to btw!...entrepreneurship, mafia, military, motivation, psychiatry, money, sports figures, etc., etc.)

P.S. Something I like to add about the recession discussion is that while we haven't had one in the past few years, historically the US has averaged a recession every 5 years (depending on what you use for the first recession date).

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