What Impact Will The Next Recession Have On Real Estate?
I had a topic I wanted to bring up to everybody live today, and the topic is about the recession. Hearing some news about the recession, some yield curve, reverse logic thing that I really don’t know too much about, but the yield curve has indicated that we’re on our way to a recession.
I decided to start thinking about how does the recession relate to what we do in real estate because I do real estate. I don’t do the recession. I don’t do the economy, but I think it’s good to talk about how I see the two connecting. I’m a subscriber to Keeping Current Matters from Steve Harney, really great guy, full of knowledge, and he had some really interesting slides that I wanted to share today. So I have my trusty laptop open and it talks about the recession. I’m going to walk you guys through what the professionals and the experts are saying about the recession, the duration of this recession or the right word is really, is it going to be a really bad recession like 2008, which is what everybody remembers, or is it going to be a mere blip on our radar screen and kind of be a speed bump as we go through things?
So, first thing is, what is a recession? Does anybody know? Anyone want to raise their hand and guess? Is anybody even watching this? But, basically recession is two consecutive quarters of negative growth to the GDP. So that could be just a little bit or it could be a lot. I think right now they’re looking at it being a little bit of a reduction. I have some slides here because, again, they’re the industry experts and all that stuff.
One of the slides I thought was really cool was when will the next recession begin? So they’re talking about 21% of the people that they polled that are experts said it’s going to occur starting in 2019. I think that we might’ve heard something about the yield curve pointing towards that. Then 46% of the folks think 2020 is the time, 2021, 24%, and then after 2021, 10%. There’s some thoughts that by 2021, or 2021 that it’s actually going to be over already because they think it’s going to be a short recession. Not all recessions are created equal from when I’m finding.
Another cool stat that I saw was how were home prices, which is most important to everybody out there, how were home prices affected during the last recession? That certainly piqued my interest, so I decided to look at the chart. In the 1980s recession, home prices went up 6.1%. So just because you hear the word recession doesn’t mean that the housing market is going to take a tumble and you’re going to lose all the value in the house that you built up since 2008, 2009, or 2010. If you were smart enough to buy in 2010, 2011 when you bought at the bottom, boy, have you really got some appreciation.
So, don’t worry, don’t run to the hills. You’re not going to lose your house. It’s not going to go up in value like it did. But, look, prices actually go up in recessions. In the 1981 recession, home price appreciation was 3.5%. In 1991, it was negative. It was negative 1.9%, almost 2%, so it did go down. In the recession of 2001, home prices continued to rise 6.6% across the nation. Now keep in mind, these are national numbers. Some certain markets I’m sure are affected differently than other markets. Then, of course, in 2008 you have the 19.7% plunge in the market. A lot of that was fear-based, but a lot of that had to do with how people got their mortgages back then. Essentially, if you breathed and fogged up a mirror, you can get a mortgage. Not good. There were interest-only loans. There were negative amortization loans.
Interest only means that you were only paying off the interest, so you’re paying interest on something that was depreciation… duh, depreciating. Not good because people were like, “Here are my keys, Mr. Banker. I’m not going to throw good money after bad. I’ll short-sale my house and I’ll go on my way.” Well, that happened across the board in lots of markets. That’s what caused a lot of this 19.7% deal, that and the mortgage-backed securities stuff and a whole bunch of other things. But I don’t feel that we’re going to see that this time at all. I have a feeling this is going to be kind of a merely a blip on our screen.
So, another cool screen or a stat was, let’s see, when will it, again, when will it begin? But the top three triggers for the next recession. Well, I’d venture to say in 2008, one of the main things was housing. Well, now housing ranks number nine as a determining factor of the recession in the economy. What’s one, two and three; trade policy, stock market correction, and geopolitical crises.
Now, in certain price points in the market, I would venture to say in the upper end, these items actually have a bigger effect on the recession and how those housing prices are going to go and how that specific housing market’s going to go. Keep in mind, like neighborhoods, every price point has its own market. So different price points are going to be affected differently in the recession that’s coming. I hope this information is helpful. I’m learning myself. This is all good stuff. I personally feel that it’s going to affect the housing market. Appreciation prices aren’t going to go super high. We’re going to have a decent amount of appreciation, maybe some zero growth, maybe a little bit of negative, but that’s not such a bad thing.
Let’s see, what other slides are here that I wanted to share the home ownership rate. There was one more slide. Oh, yeah, here it is. So here’s some of the projections from professionals. In 2019, nationally, they’re thinking 4.1% growth in appreciation for your home. In 2020, they’re thinking about 2.8%, 2.5 in 2021. So that means that based on what everybody’s seeing and based on this recession that’s coming and it is coming. And it’s not like winter’s coming and everything’s going to be horrible and everybody is going to lose their jobs and all that stuff. It’s not going to be like that. As a matter of fact, I think there was one slide that said… Where was it? But that’s what a recession is. Well, there was one slide that said, oh, they think that by the time most people realize this next recession, it’s already going to be over.
So don’t let the news scare you. Look for people that know what’s going on and have researched it. I’m starting to get my arms around it, so it’s great to have resources like Steve Harney and Keeping Current Matters. Go get to professional groups and see how it’s going to affect you in your business and what you’re doing. If you’re in trade, well, you might want to take a deeper look at that, and it might affect you more. If you’re selling your house, now’s probably a good time to sell your house. But if you’re buying a house, now’s not a bad time to buy. It’s kind of one of those things where you’re good either way. You just have to have somebody that can help you out.
So, anyway, that’s my rant today. That’s my “How is the recession going to affect the housing market?” I’ll continue to update this, guys. I’m also going to start doing some information on specific market stats. If you live in a market that you want me to analyze and see what’s going on, happy to do it. It’s one of my favorite things to do in real estate is to kind of analyze markets. It’s one of my strengths. I’m really good at it, and I love to do it. So if you live somewhere and you’re concerned about the housing market in your area, reach out to me. I’d love to take a look. I’ll get down and dirty. I’ll look at the numbers, I’ll look the stats, and I’ll give you some good guidance, provided you’re in San Diego.
If you’re outside of San Diego, I could still help. I can connect you with the right people and I can help analyze the data with them, but they’re going to be more the experts in their area based on the statistics and the numbers and all that stuff. But pretty much San Diego’s my sweet spot. I can help you up and down the coast. I could help anywhere in the nation, but we’re going to have to rely on some other people’s stuff.
Anyway, that’s my deal today. If anyone has any questions, feel free to reach out to me individually. So is that Instagram or is that Facebook or is that Facebook and that Instagram? I don’t know, kind of trying something doing a two cameras going. It’s pretty cool. They’re just iPhones. They’re just iPhones.
So anybody do anything fun this weekend? I don’t know. I did fun stuff. I played softball with my daughter. I went to the waterpark, rode a bunch of watersides, had fun with the family. Hope everybody out there is doing awesome. Talk with you guys soon. Bye.