(soft upbeat music)
- Hi I'm Justin
and welcome to The Landis Look
where we take an inside look
at the world of real estate.
Today we're going to take a look at
real estate and recessions.
I keep hearing people
talking about recessions,
people ask me about it,
I see it on social media,
there was a Curve article about it
and first of all,
are we in a recession?
Does anyone know the
answer to this question?
Do you know what a recession is?
Well we are not in one, first of all,
so if you said yes we're in
a recession, you're wrong.
We are not in a recession
and I'm not, I mean I don't
have a degree in economics,
I'm definitely not an expert at that
but I do know that a
recession is defined by
two consecutive negative
quarters of GDP growth.
GDP growth in the United
States in the first quarter
and second quarter of this
year were 3.1% and 2%.
So the economy, gross domestic product,
has actually grown.
Now granted could it be
growing at a slower pace
and so it feels like we're in a slow down?
Yes but at a high level.
We are not in a recession.
GDP has not declined, it is
still, it has still grown
and so we are not in it.
However, if we were in a recession,
or something that felt like a recession.
So maybe we have a declining growth,
what would that do to real estate?
I think that we're all
super interested in that
because I know I've gotten
a lot of questions about it.
So I did a little bit of research
and went back and looked.
So in that last seven recessions,
how many times do you think
that home prices have dropped?
Home prices always drop
during a recession?
Home prices drop usually,
sometimes, never?
Well I think you probably
know it's not never
'cause in the great
recession, everybody knows
that home prices did drop.
But in the last seven recessions,
home prices have actually
only dropped two times.
So five other times,
economy is in a recession,
GDP is negative but home
prices have gone up.
Well it's because they're
not exactly tied, right?
So they're not exactly tied
and you can have different
forces that cause recessions.
The last recession was, I
don't know if anybody would say
completely caused but definitely fueled by
the housing market and so
here's some interesting stuff
about what happened last time
that I think personally is
probably unlikely to happen
if we do go into recession
in the next couple years.
So first of all, I found
this super interesting.
Most the press you get
around what happened
in the housing market and
why it caused the recession
and what was the worst
part is the one word
that I hear over and over, subprime.
Right, you're probably
thinking in your head,
it was the subprime mortgage crisis
and there was definitely an issue with
the subprime mortgages but
you know where there was
actually a bigger issue?
It was with people who
had high credit scores,
bought investment properties
that were not good investments
that were based on speculation
because actually this is a cool stat,
in the top quartile of
people credit scores
so this is the highest credit
score so say roughly 720
to 800, of the total mortgages
that people had in 2007
at those credit scores, 43%
were on investment properties.
43% of the people with the best credit
had investment properties
and you'd better believe
that in 2008 and nine, the delinquency
and foreclosure rates
absolutely skyrocketed
on those properties.
And why is that is because
it was speculation.
They didn't have an actual
need for those houses
and so if the economy turns around
or the prices go down
or you lose your job,
are you gonna stop paying
on your personal residence
or an investment house that's empty?
Most people the investment
house that's empty.
I see way less and this
is not based on stats,
this is just me seeing
the market from last time
and this time, I see way
less speculation this time
around, than last time and so
I think that's pretty unlikely
that there's going to be such
a big amount of speculation
that would lead to a big
real estate decline there.
Secondly, we have really
low supply right now
and so the market has
definitely stabilized this year,
slowed down, whatever word you would use
but the supply is still
low in most price points
and so it's not like
there's a ton of inventory
on the market that even if we do go into
an economic recession, that
there's all these houses
that are for sale and no
one is there to buy them
and that's also different than last time.
So as we look at this and you think about
hey, if maybe should I
wait until prices go down?
Would that be a good idea?
Or should I buy now because five of
the last seven recessions it's gone up?
Let me share a couple stats
and then I'll ask you a
few questions at the end
that I think are really
great clarifying questions
to help you with that decision.
First of all, you never
know when the top or bottom
of a market is until you're actually on
the other side of it, right?
You don't know that you truly have the top
until you're coming down
and you don't know you
truly have the bottom
until you're coming up.
So the market has still risen,
median sales price has
increased year over year
from this year to last year
even though it has slowed down.
So we have not already
seen hey we're coming
from a pricing standpoint,
we're coming down the other side
of the hill.
Did you know that if you were
to look say 2005 for example
and you're like hey market
seems like it's getting high,
I can see a recession coming
or I can see a slow down
coming, I think prices are gonna come down
and you would have been right about that.
But you know when after
the peak of 2007 it was
until prices were back down to 2005?
It was 2009.
So if you said hey in 2005 I'm gonna wait
'cause I want prices to go
down and get a better deal.
It would have been 2009
until you got the same deal,
2010 until you got a better deal
and so from a pure investment standpoint,
if you're thinking hey I just want to buy
an investment property, I just
want to buy an investment,
yeah that would have
been a great decision.
If you're thinking about this
from I'm actually living there
I'm paying money to a landlord
or I'm paying down my
mortgage, that's five years.
That's a long time if your situation was
that hey I could have
afforded a house in 2005.
It would have been great to live there,
living there would have been better,
paying down my mortgage
would have been better
than paying a landlord.
Obviously lots of factors go into that
but that's a long time to wait
and what if that's the
same situation here?
Man that could be a long
time to wait 'til prices
are actually lower.
Another thing along
that is for real estate,
your gain or a loss is only
realized when you actually sell.
So even people who bought in 2007,
in most parts of Atlanta,
it's actually turned out fine,
if you didn't have to sell the house.
If you had to sell the
house in 2011, 2012, 13, 14,
something like that, yes that was a loss,
that was bad.
But if you didn't have to sell the house,
you're doing fine.
If you had the ability to
hold it and either live in it
or hold it and rent it out and wait,
in most places, the market's back
and in a lot of places, if
you bought a house in 2007,
man you're thanking your lucky stars
that you bought anything in
any of those previous years
because prices have gone up so much.
So let me leave you with this,
if you're kind of on the fence about how,
should I buy a house now or should I wait
and one of your big
factors is what's happening
in the economy.
Is there gonna be a recession
and what's happening with prices?
Let me ask you these two questions
and I'll tell you where I heard them.
Heard them from Gary Keller.
Gary Keller is the founder
and CEO of Keller Williams,
number one real estate
company in the world
and here are his two
questions to ask yourself
if you're worried about the market
or trying to time the market.
First of all, do you have
a reason to buy a house?
So for all the people in
2007 that had great credit
and bought houses speculatively,
they did not have an actual
reason to buy a house.
Speculation is not a reason.
So what would be a reason to be a house?
It would be hey I'm getting
married, we want to have
a place of our own.
Our family's growing, we need more space.
I know I'm gonna be in
Atlanta for a while,
I want to put down roots
and start building equity.
It could even be I have
money that I want to invest
in real estate and I can get
an actual cash flow on it,
a positive return, I'm doing
this for investment reasons
and it's an actual
investment, not speculation.
Those are two different things.
So first question, do you
have a reason to buy a house?
Should you buy a house?
Do you have a reason that you
would actually want to do it
or need to do it?
And secondly, can you afford it?
Once again, back to the
speculation of 2007,
people could not afford
to hold those houses.
They were just hoping
that the market was going
to keep going up and that's
why they got foreclosed
and so can you afford it?
That's a deeper question
'cause that doesn't mean
hey can I afford it if I
have 100% commission job
and I have the best year of my life
every single year.
Then the answer is no, you
probably can't afford it.
But if it, hey can I afford this house
is there is a little
bit of bump in the road
or maybe I don't get as
big of bonus next year
or something like that
because we go into a recession
or the economy's not quite as good.
Can you afford to hold
the house, either yourself
or could you rent it out and afford it
or could you take on a
roommate and afford it?
Because here's the thing:
those two questions answer
is this the right time
because if you need a house
for a certain reason in your life,
then obviously there's a value to that
and secondly, if you can afford it,
you don't have to sell
it in a down market.
So you're not gonna be
forced to realize the loss
even if the market goes down.
You will sell it when the market is up,
when the timing is good
because you have the
ability to hold the house.
So let me leave you with
those two questions again.
Do I have a reason to buy a house
and can I afford it?
If the answer to those
two questions are yes,
Gary's point is why try to time the market
because you have a reason to buy it,
you can afford it.
None of us have a
crystal ball and are able
to time the market.
So there is a little, my little take.
Get off the soapbox on that.
I hope you found this interesting.
If you have any specific questions
and if you need help thinking through,
can you afford a house, do
you have a good reason to,
we would love to have that
conversation with you.
We'll see you next week.
Thanks for listening.
(soft upbeat music)
