Talks Heat Up Regarding a Recession

Talks heat up regarding a Recession…

Not a week goes by lately that I don’t get asked if I think we are headed for a recession. This is a great question because we have been in one of the longest growth expansions ever. History shows that we had two recessions in the ’70’s, another two in the ’80’s, one in the ’90’s and two in the 2000’s and since 2010 there have been none.

Every recession has a trigger. During the ’70’s it was energy price increases. I have people asking me if that could happen now and I typically say, probably not. The reason I say this is because the US is now the world’s largest producer of oil. A big trigger is a psychological one. Pessimism makes people want to spend less. This in turn leads businesses to cut back and they reduce their investments in their businesses so they are not going to do those business improvements, or build a new office or factory or increase their hiring. The great thing right now is that consumer confidence is at an index level at 127 which is the highest reading in more than 20 years. Remember that 100 is considered neutral. Another trigger might be a rise in borrowing that cannot be sustained. In the last few years consumer debt has risen only about 5%. This would be considered fast but not earth shattering because past recessions were preceded by debt increases of 10% or more. An important part of this equation is home mortgages and those loan balances totaled about 10 Trillion this year, which is about the same as it was 10 years ago. Consider also that housing values have climbed from $18 trillion to $28 trillion. Lastly however, it could be due to a policy error. Use Turkey as an example of how they lowered interest rates during rampant inflation can lead to a crisis. This I am sure is why our President is basically begging the Fed to not increase rates at too fast of a pace, because he knows what a negative effect this could have and lead to a recession.

Who knows what will lead to our next recession, but it’s a pretty good bet that it won’t have anything to do with our real estate industry. The housing market still has room to grow. We are at the same level right now as we were in 2000 which is a total of 6.1 million existing homes plus new construction homes will be sold this year and in 2000 the market was considered well balanced. Finally, we are seeing builders responding to the lack of inventory and they are increasing their home starts which by the way also creates more jobs.

For all of these reasons, I feel that the odds of a recession in 2019 are going to be very low and if we do see a drop in GDP, it will most likely be very mild.

Great time to be buying a home. We have an increase of inventory which means buyers have more options, they don’t have to waive very important protections and with rates still at a great range their affordability is still very good.

Call us today, if you have any home questions for buying or selling. We primarily work in the Thurston, Pierce and King county areas, however we are affiliated with Leading Real Estate Companies of the World so we work with vetted real estate brokers in an area near you and can provide a great referral for you.

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Dawn Heilbrun, Owner

The Heilbrun Home Team

John L. Scott – Pierce, King and Thurston Counties (and More)

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Dawnh@johnlscott.com

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