First, a thing or two about recessions you should know. Recessions are inevitable. Cyclically they happen every 10 years or so. They just do, give or take, so there will likely be some kind of recession. It’s the natural progression from periods of strong growth to periods of decline and retraction. The 2007-2009 Recession was one of the worst—in fact the worst since the Great Depression. Most recessions do not reach that level and 2019 may just be a period of slower economic growth and not a crash.
There are a myriad of reasons why there may not be a recession and even if there is, there are significant differences in the state of the real estate market that might ease the impact of the market. Here are the 9 reasons to be optimistic about the real estate market for 2019:
The US economy is in great shape overall. While stocks are down from their highs, the S&P 500 is up over 35% compared to 5 years ago and up 175% from 10 years ago.
Unemployment is at record lows, and there has been 9 consecutive years of growth, still one of the longest in US history.
While some areas of the Country have seen extreme pricing inflation, most of this inflation is the result of low inventories and under-supply of certain properties, especially in the entry-level segment.
There is $19+ trillion (yes, trillion) in cash on standby to buy “bargains” should the market drop due to a recession. This is an important pricing stabilizer because if there is an influx of foreclosures and properties coming to market due to a recession, there is a lot of money on the sidelines to purchase these properties at presumably bargain prices. However, they will not remain “bargains” for long if all of this money is to be placed and not remain on the sidelines. In recessions and other down markets, more money and profits is made buying assets at discounted prices.
In the run up to the 2007-2009 Recession, homeowners used their homes as piggy banks and withdrew from their homes around $800 billion in equity. This time around, only $185 billion has been withdrawn.
Sub-prime mortgages, the canary in the coalmine of the Great Recession, represent only a fraction of outstanding mortgage loan debt held by homeowners.
Lending standards are MUCH more strict now than in the run up to the Great Recession where “liar’s loans” were being handed out like candy to anyone with a pulse.
34% of all American homeowners own their homes free and clear, meaning 100% equity.
25% of American homeowners with a mortgage (14 million homeowners) are equity rich—their debt is less than 50% of their current home value.
Regarding the wishful thinking mentioned above, there are people who want a recession or want everyone to believe one is inevitable. Many are traditional gloom and doomers but many of them simply want an opportunity to buy properties at bargain prices. As previously mentioned, people want to buy distressed properties. Some of the greatest fortunes are made buying in difficult times when there is a shortage of liquidity. Just because this class of buyers is pushing for a recession it doesn’t mean that it will happen or if it does, that it will be a huge crash on the scale of the last recession.
Having said all of this, it is also necessary to point out that we have no control over macroeconomic issues worldwide like trade wars, and political chaos and uncertainty does not help.
If you’re thinking of buying or selling a property, be sure to hire a knowledgeable agent who not only understands the above but has the pulse of your local market and can effectively guide you on making the best decisions. Sellers, there is still time to get a good price for your home. Buyers, if the market does turn into a buyer’s market, be ready to step up and make your move. Interest rates are still historically low and as prices adjust, you may just find yourself in the home of your dreams. And it won’t be in Oz!
(***Thanks to our fearless President Leonard Steinberg for allowing us to use some of his very informative information and statistics!)