Are we nearing a recession? What do you think?

[Destiny Rich]

The U.S. gross domestic product contracted in the first quarter by 1.5%. The stock market has been tumbling. 
Demand for warehouse space has surged as retailers look to avoid supply-chain disruptions. The retail Inflation is stubbornly high. The Federal Reserve plans to continue raising interest rates. Pending home sales have fallen for six straight months and are now trending slightly below 2019 levels. The economy, in short, is on the verge of a recession.Yet, it will not be a straightforward recession.

The bigger problem for the economy is not a lack of jobs but rather a shortage of workers; Statistically, there are two job openings for each unemployed person. However, inflation is gobbling the increase up with an 8% rise in the cost of living. A recession typically means bad news for com-mercial real estate. But this time, the condition of thecommercial market may be an indicator about thedirection of the overall economy. Demand for apartments and single-family rentals is booming because of consistent job gains and affordability challenges in the For Sale market. Low vacancy rates, though, have pushed up average rents significantly this year.

Demand for homes are still outpacing supply and homes were on the market for on average about 17 days. Where exactly is our economy headed and what can we expect?

[Kimothy Bynum]

ive been trying to figure this out too

[Henry Clark]

what are your thoughts on the economy?  1 year, 3 years, 5 years

[Steve Vaughan]

@Destiny Rich  great name first of all!

I don't focus on the macro too much since RE is so local.  When I bother to focus on anything but the specific deal or asset class I know and want it's pretty anecdotal. 

I see stagnancy in RE.  Less transactions.  Buyers worried they're overpaying, sellers still wanting the moon, boomers holding on, renters too squeezed to save, too few affordable homes being built because of the 4 Ls.  

Transaction industries will continue to be hammered.  Mortgage, title, agents, movers, spec builders, etc.   There will be a culling.  Culllings aren't always bad.  When the tide goes out...

Focus on your market and specific deals in your purview and don't be afraid to sell headaches or assets that aren't a fit.

[Sergey A. Petrov]

A recession is just a turn in the road full of opportunities. I don’t worry about it. You make the turns and keep moving forward 

[Tony Kim]

Quote from @Steve Vaughan:

@Destiny Rich  great name first of all!

I don't focus on the macro too much since RE is so local.  When I bother to focus on anything but the specific deal or asset class I know and want it's pretty anecdotal. 

I see stagnancy in RE.  Less transactions.  Buyers worried they're overpaying, sellers still wanting the moon, boomers holding on, renters too squeezed to save, too few affordable homes being built because of the 4 Ls.  

Transaction industries will continue to be hammered.  Mortgage, title, agents, movers, spec builders, etc.   There will be a culling.  Culllings aren't always bad.  When the tide goes out...

Focus on your market and specific deals in your purview and don't be afraid to sell headaches or assets that aren't a fit.

Bolded and underlined the above as truer words have rarely been spoken!

Here's my anecdotal contribution for anyone who happens to be looking to buy in prime so cal.....went open house browsing this weekend in Palos Verdes. Up until just a few months ago, every open house was pretty crowded. This time, every open house was empty and I could sense the desperation from the agents. One agent actually closed up 15 mins early due to a lack of visitors. I don't think we are nearing a recession, however, I do believe here in SoCal, we are in the beginning stages of a reset in RE prices.

[Chris Webb]

Yes, we are heading for a recession. In fact, I see RE bringing us into one. We are about to see transactions fall 50% from high to low (no timetable as this will extend multiple quarters) and since Housing is roughly 15% of GDP it will effect the overall market. The issue with a recession is the jobs market. I have never seen a called recession with low unemployment. Just my opinion, FYI - I have two econ degrees.

Someone mentioned that all RE is local and this is why having a buying criteria is so critical. It doesn't matter what happens nationally if you can find a good deal. Also, remember it only takes one seller to make your year, so keep looking and make every deal better than the last one. 

[Bernard Joseph S.]

"nearing a recession" ? We are in one. Don't let the current administration change the definition. We are all smarter then this, its here. I'm still buying regardless, a deal is a deal.

[Tony Kim]

Quote from @Chris Webb:

Yes, we are heading for a recession. In fact, I see RE bringing us into one. We are about to see transactions fall 50% from high to low (no timetable as this will extend multiple quarters) and since Housing is roughly 15% of GDP it will effect the overall market. The issue with a recession is the jobs market. I have never seen a called recession with low unemployment. Just my opinion, FYI - I have two econ degrees.

Someone mentioned that all RE is local and this is why having a buying criteria is so critical. It doesn't matter what happens nationally if you can find a good deal. Also, remember it only takes one seller to make your year, so keep looking and make every deal better than the last one. 

I don't have a strong opinion about whether or not we are entering a recession, but will just say that when it comes to 'transactions', ie. buying, selling and development of MFs, that actually only consists of 3-5% of GDP. The rest of the amounts which bring us to 15% consists of general living expenses such as rent, utilities etc. So a slow-down in real estate transactions doesn't necessarily mean we are entering a recession. I can't help but think a recession is still a ways off due to the labor market, the insane salaries that are being paid, and the way everyone continues to eat out despite the astronomical dining costs. Of course, this is all just anecdotal speculation.

[Mike Anderson]

We are already in a recession, its laughable to act as if the previous 50 years of what is a recession is now in question.... It will be interesting to see where the rates go, but if rates go up and force mortgage rates up the price of houses will drop as well. I'm generally a pretty positive guy but when you look at world and the overall landscape things could get badly quick. The other consideration is everything works together, if the market tanks badly, and or unemployment gets bad, or if inflation continues worse... It will affect real estate.

The global concerns will affect us in one way or another and so many things could lead to significant military involvement or other issues.

1. The Russia/Ukraine situation is one errant missile away from WW3.
2. What happens if China goes to take Taiwan?
3. What happens if Russia shuts off oil into Germany, or parts of the EU
4. What happens when the effects of the lack of wheat out of Ukraine and Russia hit global markets?
5. What happens when the lack of fertilizer out of Ukraine and Russia hit the global markets.
6. You are starting to see more and more news of layoffs now, and companies are starting to report losses.
7. Credit card debt has sky rocketed overall and i read multiple articles that people are doing cash out refi's at 6% to pay off the cards and or cards. None of this seems like good things.

Some of these things by themselves happening could cause the other ones to happen as well causing a domino effect. There are just a lot of big things going on globally right now that have a possibly of really really causing issues, to include but not limited to the housing market. I'm in my mid 40's and i dont remember a time with so many big gotcha's hanging around out there. It's going to be an interesting ride.

[Allen Wu]

Quote from @Destiny Rich:

The U.S. gross domestic product contracted in the first quarter by 1.5%. The stock market has been tumbling. 
Demand for warehouse space has surged as retailers look to avoid supply-chain disruptions. The retail Inflation is stubbornly high. The Federal Reserve plans to continue raising interest rates. Pending home sales have fallen for six straight months and are now trending slightly below 2019 levels. The economy, in short, is on the verge of a recession.Yet, it will not be a straightforward recession.

The bigger problem for the economy is not a lack of jobs but rather a shortage of workers; Statistically, there are two job openings for each unemployed person. However, inflation is gobbling the increase up with an 8% rise in the cost of living. A recession typically means bad news for com-mercial real estate. But this time, the condition of thecommercial market may be an indicator about thedirection of the overall economy. Demand for apartments and single-family rentals is booming because of consistent job gains and affordability challenges in the For Sale market. Low vacancy rates, though, have pushed up average rents significantly this year.

Demand for homes are still outpacing supply and homes were on the market for on average about 17 days. Where exactly is our economy headed and what can we expect?

Textbook wise. We are in one. 2 consecutive quarters of negative gdp. 

[J. Mitchell Bernier]

Technically we are not in a recession until the National Bureau of Economic Research says so. Yes we have two consecutive quarters of slower GDP, which is a big indicator for a recession, but with unemployment still hovering around 3.5% it will be tough to argue that we are in one now. 

Are we heading for one, absolutely. The jobs report that came out showing that over 500K jobs were added only added more fuel to the fire for the FED to continue on their course to raise rates until something breaks, inflation or the whole broader economy. My bet is the whole economy will break first then inflation. Nonetheless, we are not there yet. Maybe 2023 or at the latest 2024. 

What does this mean for us? It all depends on your specific market, but for everyone we should be increasing your reserves for a potential increase in vacancies. If you are still buying, like we are, make sure you run your numbers with higher vacancies, lower rent growth, and higher interest rates. Also try and lean away from longer term developments or rehabs, 12 months or more. 

Just my two cents. 

[Bruce Woodruff]

We are technically in a recession. The country is going downhill fast. Will it affect your Real Estate career? Nope, not if you're smart about it.....

[Eliott Elias]

October 1 recession 

[Chris Seveney]

To me does not matter, what I am watching is the tightening of money. As Buffett says, we are going to be finding out in the very near future when the tide rolls back who was swimming naked. There are a lot of uneducated investors big and small over the past five years that think real estate is easy. Once the money tightens up and people struggle for cash, that is your opportunity to jump in and take advantage of the opportunity. Areas I think that will get hit hardest are areas primarily 2nd residences and STR's in oversupplied or very rural locations.

[Bruce Woodruff]

What @Chris Seveney said ^^^^

[Henry Clark]

@Destiny Rich

Forget all of us and our opinions or thoughts.  The reason you should be asking the question is for either your "Personal" risk assessment or investment strategy.

Also look at timeframe:

1 to 3 years out:

Person A- Day to day paycheck, no Real estate investments.

Person B- Day job, owns a home, has 3 SFH or a couple MFH.

Person C- Already hit their "Number", owns CRE, and 50 "doors" in SFH and MFH; stock portfolio.

Each of us need to take different action plans depending on our individual situation.

I'll use myself.

Stocks, moved out of stocks.  Losing money right now with the stock market going up, but we plan the market will take a nosedive this fall. Stock market never goes straight up or down.  Does a lot of ups/downs while it is trending one way or the other.

Bond investments moved from 3 to 5 year, to 3 to 6 month.

Cancelled two new Contractor building projects.

Building one new small Self storage add on building due to demand pressure.

Land- did a subdivision and sold off lots within one year, versus holding the land further.  Used these proceeds to pay down debt on Self Storage.

Refinance- Consolidated about 5 loans with my one banker. Gave up about .75% points across the board since the debt had lower interest rates. Kept the amortization date at 20 years which helped lower payments, but my banker gave me a 7 year versus the previous 5 year balloon payment date. At the end of 7 years we will be at a really strong LTV, to where we don't care what the market interest rate is. The worst thing that could happen to you is to have to refinance in a period of high interest rates, say 9%. Plus, will they refinance you, if your underwater? This way we locked in for 7 years, even though we had to pay an extra .75%.

Selling our newest and best storage location.  Has hour highest debt load and is at 25% occupancy, which is good at this stage of the rent up.  Why would you sell your best location, that you put sweat into?  Pure risk assessment.  Got rid of a lot of debt and also made a really good profit (cash going into a bad economy).

If your Person A, you should be Trailer, house or MFH house hacking or flipping.  Making sure you are in a secure job and industry.

If your Person B, you should be refinancing your loans. Take the Known hit, so your interest rate is locked in and any balloon payments are pushed out.

Time frame longterm:

Baby boomers are retired or retiring.  They will start to sell their houses and downsize or move to rest homes.  They will start/have moved their Market investments from stock to Bonds.

Younger group, should be looking at their

[Bruce Woodruff]

Quote from @Henry Clark:

Baby boomers are retired or retiring.  They will start to sell their houses and downsize or move to rest homes.  They will start/have moved their Market investments from stock to Bonds.

Most of your observations were fine, but this one not so much. All the Boomers I know are buying their dream homes and investment Real Estate.

[Henry Clark]

@Bruce Woodruff. More about giving Mrs Destiny perspective than being right or wrong. Or coming from our individual viewpoint.  

Aging people 60/70/80/90 will generally go through the same curve downward in life.  Which age group you pick or personally know will be in a different investment mode but all on a similar curve

The main point is this group will move towards asset preservation versus growth. As they do that their investment groups will tend away from stocks or active assets and more towards bonds and secure investments. She should understand this once in a lifetime trend of the magnitude of baby boomers coming through and the small population size in her group.  This is the beyond 3 year discussion to her question. If I was to dissect her into different groupings living in Atlanta and being in real estate I would recommend a certain career and investment track based on her specific items she brings to the table. 

[Bruce Woodruff]

@Henry Clark I understand and agree. It was just a big generalization. Of course as we boomers get into our 80s and 90s we will downsize. But 60s and 70s nowadays are still full bore party time....well at least around where I am, maybe we're weird....

[Bryce Nurding]

I am mostly worried about recent aggressive action by some of our adversaries. The middle east is also still doing its thing. As far as the overall economy the world has never been doing so well.

[Eric Bilderback]

I believe we are closer to becoming a Banana Republic everyday.  I don’t know if we will be in a recession in the near future apparently that definition is “evolving.”  But I don’t believe it is possible for average Americans standard of living to continue.  

[Bruce Woodruff]

Quote from @Eric Bilderback:

I believe we are closer to becoming a Banana Republic everyday.  I don’t know if we will be in a recession in the near future apparently that definition is “evolving.”  But I don’t believe it is possible for average Americans standard of living to continue.  

Yessir we are. And how the political infighting, (which is bound to get really nasty in the future - payback being a beeatch), will affect the rest of us, is hard to say. It is hard to believe that the average Joe who has a few properties, will be affected by politics..... I've been politically aware since the early 70s and this is uncharted waters nowadays.

[Eric Bilderback]

@Bruce Woodruff

I don't think Joe's property will be affected by politics but Joe's standard of living will certainly be affected.  0.5% of the population has more wealth than the lowest 90% of the population combined.  This was not true when I was twenty but this is what millennial's are up against and history suggests this is not politically sustainable, certainly not in a democracy/republic.

[Henry Lazerow]

Inflation is falling meaning the fed will not be as aggressive. Things are looking very positive from here on out. Biggest risks are a gas price spike again driving inflation up. 

[Bruce Woodruff]

Quote from @Henry Lazerow:

Inflation is falling meaning the fed will not be as aggressive. Things are looking very positive from here on out. Biggest risks are a gas price spike again driving inflation up. 

You must be living in a different universe than us. Inflation is falling (slightly and temporarily)  by most accounts. Smart folks like you know that inflation adjusted briefly downward only because of the falling gas prices. We're moving into a recession (already are technically)....

Nothing much 'very positive' going on for most people. I could go on, but this is not a political forum.