Are We Headed Into A Recession?

I don’t know about you but I’m sick of all the hype. The media is downright lying to us or at the very least over exaggerating this whole thing. Their deliberate lack of actual facts and one-sided reporting is frustrating. They’ve managed to pump enough fear into the system and grind our economy to a virtual standstill. At least for the time being. 

Fact: We are not all going to die of the Coronavirus. Call me a skeptic but I typically resist media hype and go in search of facts, so I don’t fall for the fiction. Here’s a CDC graph comparing the C-virus to the Flu both nationally and worldwide. The Flu has a 10% fatality rate in the USA compared to the Coronavirus death rate nationally is at 1.6% and internationally at 4%.

CDC and Woldometer Coronavirus

Visit the Worldometer to view the number of cases by country in real-time. Looking at the bright side, here are some encouraging signs this virus will likely tetter out sooner rather than later. What they are not telling us…

  • China has closed down its last coronavirus hospital because there are not enough new cases to support them.
  • Physicians in India are successful in treating Corona. The combination of drugs used: Lopinavir, Retonovir,  Oseltamivir along with Chlorphenamine. They are going to suggest the same medicine globally.
  • Researchers of the Erasmus Medical Center claim to have found an antibody against coronavirus!
  • A 103-year-old Chinese grandmother has made a full recovery from COVID-19 after being treated for 6 days in Wuhan, China.
  • Apple reopens all 42 china stores.
  • Cleveland Clinic develops the COVID-19 test that gives results in hours, not days.
  • The number of new cases in South Korea is declining.
  • Italy is hit hard, experts say, only because they have the oldest population in Europe.
  • Wuhan celebrates the closure of the last temporary hospital in Wuhan.
  • Scientists in Israel is likely to announce the development of a coronavirus vaccine.
  • Maryland coronavirus patients fully recovered; able to return to everyday life.
  • Two more Filipinos have recovered from COVID-19 and are now discharged from the hospital. Only two Filipino COVID-19 positive patients remain in hospital isolation.
  • A network of Canadian scientists is making excellent progress in Covid-19 research.
  • A San Diego biotech company is developing a Covid-19 vaccine in collaboration with Duke University and the National University of Singapore.
  • All 7 patients who were getting treated for at Safdarjung hospital in New Delhi have recovered.
  • Plasma from newly recovered patients from Covid-19 can treat others infected by Covid-19
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Global Recession? Not So Fast…

Now the doomsday mainstream media are floating fears of a global recession. In times of uncertainty like these, the best thing we can do to ease the fear of a recession is to look at the research, facts, and data available.

Gratefully, we have hindsight on our side. Let’s take an objective look at what has transpired over the years and how the housing market has successfully weathered the storms. 

First off, what is a recession?

“A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” – National Bureau of Economic Research

Just as we were in the middle of an economic boom, COVID-19 slammed on the breaks and has us all in a virtual “holding” pattern. That doesn’t mean though that the engine if off. It’s just sitting in neutral basically. When we look back at this time down the road, I think hindsight could show we were in a short recession from April to June. I can concede that point as valid. Keep in mind though that history has shown us that recessions do not typically trigger a housing market crash.

Not The Market Crash of 2008

Most of us still have lingering memories of the 2006-2008 market crash. Back then, far too lenient mortgage financing flooded the housing market with new homebuyers, prices soared, a surplus of inventory and excessive equity-tapping triggered the collapse. 

But today’s market conditions are a far cry from that. Not one of those same factors is at work today. The good is that housing is NOT a catalyst that could send us into another recession.

“It will be different than the Great Recession. Things unraveled pretty quickly, and then the recovery was pretty slow. I would expect this to be milder. There’s no dysfunction in the banking system, we don’t have many households who are overleveraged with their mortgage payments and are potentially in trouble.” Danielle Hale, Chief Economist at Realtor.com

Let’s look at the chief contributors to the last great recession and how they compare to today. 

Mortgage Availability

Today’s mortgage standards are nothing like they were back then. Back during the housing bubble, they were giving out mortgages to folks who had no business getting one. They were handing them out like candy. No income history? No problem! 

Today, it’s much tougher. The Mortgage Bankers’ Association releases a Mortgage Credit Availability Index which is “a summary measure which indicates the availability of mortgage credit at a point in time.” The higher the index, the easier it is to get a mortgage. 

Historic Data for the Mortgage Credit Availability index

As indicated, during the housing bubble standards are very low and mortgage availability was extremely high.  Notice the dramatic drop in June 2008 and then another slight dip in June 2010 through 2013. By comparison, mortgage standards and availability today is still considerably stricter than it was during the housing bubble.

Housing Prices

Here’s a great graph. It shows where housing prices were six years leading up to the crash compared the last six years. Although price appreciation has been holding steady recently, it is nowhere near what it was leading up to the housing crash in 2006. 

Annual Home Price Appreciation

As you can see, there’s a big difference between these two periods of time. Normal housing price appreciation is around 3.6%. We’ve been hoving around 4-5% appreciation nationally and it’s nowhere near the 8.5%-12.5% rise in the years prior to the crash.

There’s No Surplus

Generally, a six month supply of housing is what’s needed to sustain a normal real estate market. The real estate market follows the principle of supply and demand. Too many houses on the market result in a depreciation.  Too little inventory and housing prices go up. 

Price, Income & Rates

Affordability consists of three main factors, housing prices, wages and interest rates. Fourteen years ago, home prices were really high around 11-12%, wages were low and mortgage rates were over 6%. 

Today, prices are up 3.5% nationally. wages are up and the mortgage rate is low, 3.5%. The average family has more money in their pocket after their monthly mortgage payment.

Equity Rich

Leading up to the housing bubble, homeowners were using their home’s equity as a personal ATM machine. Many people were withdrawing from their equity as soon as it built up. It was a hard lesson to learn.

Since home appreciation has risen gradually over the years, half the homes in the country have 50% equity.  Having learned some valuable lessons, today’s homeowner is holding on to their equity. 

The table below compares the equity withdrawal over the last three years compared to 2005-2007. 

As shown above, the level in which homeowners are cashing out their equity today is sharply below that of 2005-2007. Because homeowners back then were tapping into their equity for too soon and too often, they were left with little to no reserves when the bubble popped, market crashed and jobs disappeared almost overnight, leaving many to walk away from their homes. 

Home abandonment was so high back then, it led to a rash of property foreclosures when then sold at huge discounts. This then led to home depreciation in one neighborhood after another. That cannot happen today.

A Quick Recovery

The just-released Goldman Sachs GDP Forecast for this week demonstrates that although there’s no real immediate growth, gains are forecasted heading into the second half of this year and getting even stronger in early 2021.

“Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices).” John Burns, founder of John Burns Consulting

Both of these experts seem to indicate this is a hiccup. A momentary event, not a collapse of the financial industry. It’s predicted to rebound quickly, which is in stark contrast to the financial crisis of 2006-2008. In fact, it took years to get back to a sense of normalcy.

That’s not to say, what we are experiencing now doesn’t pose its own set of challenges, of course. It’s not expected to have any long-term ramifications contrary to what the media “experts” are saying for their 15 minutes of fame. 

A Recession Does NOT Beget A Housing Crisis

As I mentioned earlier, history is a great teacher. Let’s take a look at the last five U.S. recessions in the chart below. As you can clearly see, home values actually appreciated in three of the five recessions (shown in green). 

Now it’s true home values sank 19l7% in the last recession but we’ve already discussed the extenuating circumstances then are not in play today.  That leaves us with the 1991 recession, where you home values depreciated only once and less than 2%. Compared to the other three (1980, 1981 and 2001) where prices rose by 3.5%, 6.1% and 6.6% respectively.

What We Know

Sure, concerns about how the Coronavirus will impact our country are real. The health and wellness of our family and friends are at the forefront of most everyone’s mind. I’m not trying to make light of that fact. 

“Several economists made clear that the extent of the economic wreckage will depend on factors such as how long the virus lasts, whether governments will loosen fiscal policy enough and can the markets avoid freezing up.” – Bloomberg

We can be confident though that although we don’t yet know the exact impact the virus will have on the housing market, what we do know is that housing isn’t the trigger. 

Are we headed into a recession? Realestate news, tips and more.

The reasons we move are typically due to lifestyle changes such as marriage, family growth, job change, relocation, or retirement.  Each of those represents a steadfast aspect of life. After all,, we E all need a roof over our heads. That’s not likely to change any time soon, if ever.

Economically, we are in pretty good shape. Jobs have flooded into the economy, wages are up and interest rates are still pretty low making it the right time to buy. Some homeowners who have to sell, are still listing right now. However, I think it’s fair to say that most will want to wait it out rather than let their listing grow older day by day.

“The housing sector enters this recession underbuilt rather than overbuilt…That means as the economy rebounds – which it will at some stage – housing is set to help lead the way out.” Robert Dietz, Chief Economist with NAHB

Realtors in cooperation with the seller can offer virtual tours for homebuyers, but most won’t want to purchase a home “sight unseen”. The good news is there are ways around that such as placing a contingency on the purchase agreement that says you must be given the opportunity to physically tour the house and agree on its purchase in addition to a home inspection at a date to be determined.

Do Your Part To Fight The Hype

I’ve done the research and put it all together for you here. Hopefully, you’re feeling more optimistic about the future. I’d like to get your feedback on this information and have one favor to ask of you…share this! Share it all over social media and get the word out in an effort to combat the media hype.

They say information is power. Now that you have the facts, pass it on so others can benefit. Once our eyes are opened, it’s next to impossible to hoodwink us into another doomsday scenario.

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We may be facing challenging economic times today, but the housing market is poised to help the economy recover, not drag it down. Let’s connect to make sure you’re informed and ready when it’s time to make your move.

Your Two Cents

How has this pandemic affected your real estate plans? Do you have questions about what’s ahead? Leave them here and I’ll do my best to help you. Share your comments and concerns here.

Annette Hibbler, Keller Williams Realty

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