US Recession 2022 | The Real Estate Housing Crash?

June 14, 2022

US Recession 2022 | The Real Estate Housing Crash?

I want to talk about the recession, a little bit about the economy, and where real estate is heading.

I want you to listen to and use the data I give you daily on my YouTube live videos. Because there is no housing crash right now.

I am not here trying to sell you anything to convince you that I have the solution for you, because I don’t. I just want to help keep you informed on what is happening in the world, the economy, and real estate.

The recession is a “self-fulfilling prophecy”

This Fortune article is titled Famed economist Robert Shiller says there is a ‘good chance’ of a recession—it’s a ‘self-fulfilling prophecy.’

If you don’t know who Robert Shiller is, he is a Nobel laureate and a Yale professor. In a Bloomberg interview, he said there’s a "good chance" (over 50%) that the US will experience a recession sometime over the next few years, according to Fortune.

Now, that is very generalized. That’s like saying in the next few years something bad is going to happen.

While Fortune says, “While there are many reasons behind the increasing chances of an economic downturn, from inflation to the war in Ukraine, Shiller said that he believes a recession may become a “self-fulfilling prophecy” as consumers, investors, and companies prepare for the worst and slow down their spending.”

“The fear,” Shiller said, according to the article, “can lead to actuality.”

How is that not true?

Think of the things you constantly think of—As humans, we have this reticular activating system that identifies the things that we are continually thinking of, and we end up seeing more of them.

In the same way, if we keep throwing out there that the housing market is going to crash, that the US economy is going to tank, the [constant] fear can make that a reality.

And Shiller wasn’t the only one who said that. Throughout history, you can read about that.

“Most economists are more optimistic, but Shiller said rising consumer prices are wreaking havoc on average Americans’ economic sentiment, even after the U.S. economy added 390,000 jobs in May,” Fortune continues.

Take a look at where the economy is—when it comes to unemployment, the rate is very low.

According to the article, “On top of that, “stark” political polarization, “post-traumatic stress disorder” from the pandemic, and talk of a U.S. “housing bubble” are dampening consumers’ confidence in the economy, leading to increased odds of a recession, Shiller said.” 

I once saw a comment on Facebook that said, “People get rich in recession. Be people.” And I love it, whoever it was who posted that comment.

It’s a good point. If you look at the recession in real estate, out of the last six recessions, during four of those we saw an upmarket in real estate. Those are what the statistics say—real data. The only recession when we saw a negative housing market was in 2008, when the fundamentals of the economy were completely broken.

So, when you see these YouTubers and other media outlets saying the housing market is going to crash—we don’t know because all the data doesn’t show that.

Real Estate–A hedge against inflation

In this Fortune feature article titled “After 7 straight quarters when Americans got richer, household net worth just fell by $500 billion,” we see some concerning news, but it comes with good news as well.

If not for the hot housing market, the Fed said, the damage would have been even worse. “A sizable $3 trillion decline in the value of stocks on the household balance sheet was partially offset by an increase in the value of real estate,” the central bank wrote, as a $1.6 trillion gain in household equity and a high rate of saving made up for the huge decline in equities. (Source: Fortune)

That’s important to pay attention to because housing is something that, over a longer period of time, people have equity in their houses. They don’t always pull out money there. They use that as a piggy bank. That’s the reality.

Sadly, according to this article, “About 61.3% of Americans are living paycheck to paycheck, according to a report by loan issuer LendingClub. This represents a 9% increase since last year. The wealthy are still able to splurge while lower-income households spend less since government assistance and higher wages were pulled back, as pointed out by the Washington Post.”

That’s important to note because inflation also plays a big role in this. Everything costs a lot more. 

Market shift towards normal

I got one last article for you from Market Watch. It is a good article, but it also relates to the recession and what Mr. Shiller said earlier. It is titled, ‘All of this points to a broader weakness in the housing market’: Buyers are officially spooked by rising interest rates—just don’t expect a real estate crash.

According to the article, “some buyers [are] saying they are pushing off plans to purchase a home by as much as 6 to 12 months.”

Those are the buyers that were already looking. Obviously, the ones that are coming in now understand the market we’re in, and they’re still purchasing properties.

“Does this mean that we’re going to see a collapse the way we saw 15 years or so ago?” he [Michael Neal, Principal Research Associate in the Housing Finance Policy Center at the Urban Institute] added. “I would probably say no, in part because incomes are strong, and there’s still a shortage of inventory.” (Source: Market Watch)

As of right now, there is no housing bubble. That can change, though. That’s why I watch the data every day.

And we’ve shown so many times that house supply is significantly low, and demand is still high, even if it is starting to cool down a bit.

“Home prices have correspondingly started to rebalance. CoreLogic expects annual home-price appreciation to slow to 5.6% by April 2023, it reported on June 7. Compare that to the 21% annual increase in housing prices in April 2022,” Market Watch says.

Real estate is heading towards a more normal market now that we are coming out of the pandemic. And even if appreciation is forecasted to slow down, it is still an appreciation in home prices.

Here’s the thing: you’re going to find companies that just as new data comes out, we don’t know if we’re in a recession. Some people are saying we are, and some are saying we’re not. Shiller says maybe in the next two to three years or so. We don’t know, because we don’t have enough data, and we don’t know where the consumer is headed either.

At the end of the day, it comes down to demand. A 5.5% mortgage rate is still lower than inflation. Yes, it did increase rapidly to 5.5% over the span of a month and a half.

But still, it’s maintained at that level.

As long as the Fed doesn’t raise rates more than they said they would, that mortgage rate will remain around that range as well.

This isn’t 2008 all over again. Pay attention to what’s happening on a daily basis, because things can change.