Well, we are continuing along into the longest economic expansion in U.S. history! But when will it end?
No one really can predict exactly when it will happen and the Presidential outcome in 2020, just might have an effect on whether this will happen. It’s not a matter of if it will happen, but when.
Most importantly, it will not be like the crash of 2008 due to easy lending and excessive inventory. Some of the policies that are in effect may not be the most beneficial to our economy down the line and have had a profound impact on other country’s economies, especially China.
Will it be survival of the fittest as to who wins this senseless tariff fight? Are we doing a “tit for tat,” when tariffs in the last hundred years never had a clear cut winner in the end?
Are our farmers better off right now or are the tariffs forcing many into bankruptcy, since China has stopped purchasing soybeans and other produce? Is that right? Yes, China has stolen some of our intellectual property and industrial secrets, but are tariffs the answer in providing the proper punishment, when our farmers and business entrepreneurs are suffering more than China?
They may be able to hold out longer than we can. “It is potentially a self-inflicted-wound type of recession,” said Tara Sinclair, an economist who studies business cycles at George Washington University. “But how deep that gash goes depends on many other characteristics of the economy and the policy response thereafter.”
Fortunately, real estate has done very well in the last three out of five past recessions. As per CoreLogic, is a leading provider of consumer, financial and property data, analytics and services to business and government. Here is how price appreciation faired in the past five recessions.
1.) 1980 +6.1 percent
2.) 1981 +3.1 percent
3.) 1991 -1.9 percent
4.) 2001 +6.6 percent
5.) 2008 -19.7 percent (due the collapse of the mortgage industry their sub-prime toxic loans)
The next recession may be a soft one and the predictions are that home prices will increase this year and in 2020.
As per Keeping Current Matters, of six major housing sources, shows that a home price appreciation survey will be approximately 4.1 percent in 2019 and 2.8 percent in 2020. The mortgage bankers association predicts 4.7 percent in 2019 and 3.5 percent in 2020. Zelman and Associates predict 3.5 percent in 2019 and 3.2 percent in 2020. Freddie Mac predicts 3.4 percent 2019 and 2.5 percent in 2020. National Association of Realtors says 3.4 percent in 2019 and 3.3 percent in 2020. Fannie Mae predicts 5.4 percent in 2019 and 3.7 percent in 2020.
As you can see, no source is predicting a downturn in price appreciation. Although the increases are much less than in past years, it still shows an upward trend.
Due to uncertainty, some consumers may be waiting for prices to decrease, which based on the survey, doesn’t appear likely, so waiting will only cost more for the first time or move-up purchaser.
However, the luxury and higher-end market has seen a much more softening, due to excess inventory (and the S.A.L.T tax maximums of $10,000), due to overbuilding especially in New York City.
Consumer spending is still doing well (but not as hot as a few years ago) and accounts for two-thirds of our economy. Business spending and investment accounts for about fourteen percent of our economy and spending has slowed from the effect of the tariffs making imported goods more expensive. Unless there are major layoffs hiring freezes, cuts of overtime, a reduction in wages and incomes homeownership should still be a strong sector. The uncertainty as to when these tariffs might be eliminated or adjusted makes businesses become more conservative in their future outlook. Business debt is at historic highs again, but luckily with lower borrowing rates (but if rates were to go up that would be a real major issue).
Due to a slower economy interest rates were lowered, but I believe lowering rates again may not be the answer. Housing inventory is still not up to the normal six to seven-month levels.
So having more people be able to afford a home may not help if there is not enough inventory to satisfy their demand and this could possibly cause home price appreciation to potentially increase beyond the previously predicted statistics.
It’s the basic supply and demand economics. If the inventory is low and demand is higher, prices go up and if demand is reduced and supply increases then prices go lower. Builders are trying to catch up with demand, but only time will tell where the inventory will be. Although some negative sentiment and feelings might be festering out there about a recession, my professional opinion is to stop worrying and buy something, (especially with lower rates than in 2018, making it more affordable), for your family and/or grow your roots within your community and over the long run, your real estate investment will be safer.
Leaving your money in the bank or in the stock market, I believe will be more unpredictable, especially if you are not a very savvy investor. However, perception can turn into reality if we focus too much on the worrisome news!
Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 Great Neck. He has earned designations as a Graduate of the Realtor Institute and a Certified International Property Specialist.
He can be reached by email, at:Phil@TurnKeyRealEstate.Com, or by cell: (516) 647-4289.