The likelihood of a recession and
affordability are going to be the two
main topics in this month's real estate
market update. Hi this is Andrew with The
Andrew Smith Team of eXp Realty and this
month I wanted to focus in on recession
and affordability even though they are
a couple of topics we've touched on in
the past, only due to the fact that I
have been hearing more and more about
them in emails I receive, newsletters I
receive, and on the news. In general I don't
watch a lot of news but what I have seen
there's been a lot of focus on the
economy and where things are going and
if you've seen any of the videos or
read any of the blog posts I've put out
before you may have a sense that, you
know, I try and block out the noise and
just look at the facts because let's
face it there's a lot of noise out there
today especially the political noise just
put political climate in general, and I'm
not saying you know it should be this or
it should be that but we've reached a
point where there's you know in my
opinion there's a lot of things that are
sensationalized and not the whole story
always seems to be given and
everything's an argument. I mean if
somebody says this I'm gonna say the
opposite no matter what just because
it's different from what they said, but I
digress so let's get back here and look
at the idea of a recession because since
the last update last month I have heard
more talk about a recession and although
nobody has a crystal ball, you know mine
is fuzzy, it doesn't always work, and and
I haven't really met anyone that can
predict the future very well, but the
likelihood is that yeah, there is going
to be a recession and that's not
necessarily a bad thing. I mean the
American economy right now
has been in the longest period of
recovery in its history. It's been moving
and growing extremely fast so it only
makes sense that that pace of growth
cannot continue forever. There is going
to be a slowdown, but it's important to
remember that just because there's going
to be a slowdown doesn't necessarily
mean it's all bad news
and it's going to be catastrophic for
the economy and/or specific to housing
As a matter of fact there was a quote I
saw just recently from Mark Housel
and he's a well-known financial analyst
and he said the interesting thing is
that the widespread assumption is that
the next recession will be as bad as
2008 and while it's natural to think
that statistically it's highly unlikely
as a matter of fact the recession could
end up being over before you even
realized it began. So he's just another
one of several that kind of have a
feeling that it's gonna be a soft
landing so to speak on anything that
does happen.
Now again speaking of recession when is
one likely to occur you know again I
don't know for sure but I can tell you
that the latest surveys that are being
done of the major economists are
overwhelmingly pointing towards 2020. If
you combine the results of the four most
recent polls it actually comes out at
right about 50% believe it will be in
2020 and a total of 85 percent believe
it'll be 2020 or 2021,
but like I just said that doesn't
necessarily mean it's bad news and the
problem that we've got right now is
there's been so much talk about all of
this that it starts to generate fear and
it generates anxiety and that's not good
as we all know fear and anxiety can make
the things in our lives so much worse
than they actually are. As a matter of
fact when you go back to 2018 that
marked the 10-year anniversary of the
official start of the Great Recession so
2008 when the Great Recession was and in
looking back at that ten-year
anniversary
Warren Buffett made an interesting
comment he said, fear spread like a
tsunami in 2008 and when you combine
that statement with a statement or quote
that I have here from Ben Bernanke that
was the chairman of the Federal Reserve
his explanation in ten years later,
looking back at 2008 was, my results do
suggest that in the absence of the panic
the declines in employment, consumption
and the output in the early stages of
the Great Recession would have been
significantly less severe. So why do I
bring that up? I think it's important to
bring it up because with the political
climate that we're in with 2020 being a
election year and with there being just
animosity going back and forth on all
sides there's a lot of sensational news
going out or going on which can trigger
fear and that fear can make things worse
so I just think we need to keep that in
mind, but again when the recession does
come, and it will come, it's important to
remember that a recession doesn't mean
there's going to be a housing crisis
okay and if you actually look at the
last five recessions home price
appreciation actually went up in three
of those five so the pace of
appreciation homes continue to
appreciate even though we were in a
recession so it's important to keep that
in mind and in the one recession that
they did go down it was minor it was
less than 2% again national average it
was only the 2008 catastrophic crash so
to speak where there was a significant
drop. Now with that in mind when those
economists were asked what do you think
the top three triggers of the next
recession are going to be? It's
interesting the top three were trade
policy, a stock market correction and a
geopolitical crisis. None of them
mentioned housing. So where's housing in
all of this it actually came in at
number 9
so even the main economists aren't
overly concerned with the housing market
itself but nevertheless all the talk of
recession and uncertainty we go back
again and it creates that fear and that
anxiousness so when you look at another
survey and you ask people in the market
to potentially buy a home
what's the leading obstacle to
homeownership at the at the current time?
40% said affordability now that's really
interesting to me because we're not
seeing affordability issues. As a matter
of fact homes right now in you know and
except for a few very high-priced
pockets across the country homes right
now are more affordable than they've
been in most of the past 20 years as a
matter of fact between nine you know
homes were less affordable between 1990
and 2008 than they are right now. The
only time affordability was higher was
after the 2008 crash when the bottom
fell out of pricing, so it's important to
keep that in mind
and you know the one thing when we look
at affordability in housing is you know
Mark Fleming he's a Chief Economist with
First American he made an interesting
point he said the difference between
housing and other goods is that we buy
housing with a mortgage so it's not the
actual price of the house that matters
but the price relative to your
purchasing power. So think about that for
a minute,
even though home prices have gone up and
we know they've gone up quite a bit over
the last ten years, does that mean
housing is
less affordable now everyone's situation
is different, I understand that, but if we
look at this overall and you consider
where interest rates are you start
saying and say ok to buy a home today is
it more or less expensive than it was in
the past? Now historically housing took
up 21.2 percent of your monthly income
that was the historical norm as the
percentage that the housing payment
would be. Right now we're running at
16.6 percent. so 16.6 percent of income is going
towards housing and that is likely to
fall a little bit as interest rates
continue to come down and the pace of
appreciation has slowed. So you know
overall right now the look for housing
is not bad I am going to make some a
couple of other videos if you're
interested specific to the areas that I
directly work in so you know if those
are of interest to you please check my
blog at TheAndrewSmithTeam.com/blog
or if you subscribe to the YouTube
channel videos on those will be there as
well, but you know everyone's situation
is unique and it's different and if you
have questions reach out give me a call
888-447-9650 or shoot me an email Andrew@TheAndrewSmithTeam.com
and I'd be happy to discuss your unique
situation in your particular situation
and help you make some sense of what
might be best for you but again overall
in closing here it's I'm just think
let's keep things in perspective you
know let's let's take a look at the data
take a look at what it's showing us and
not necessarily get caught up in the
panic or the anxiety or listen to those
that are doing nothing more than trying
to spread fear because we don't need any
more of that. Until next week
