Recessions & Real Estate

Recessions are inevitable

As markets continue to wobble and more people discuss the possibility of heading into a recession, let me share a fundamental truth about money:

If markets never crashed, they wouldn’t be risky.
If they weren’t risky, they would get expensive.
When they’re expensive, they crash.
So markets will always crash, because if they didn’t, they would become more susceptible to crashing.

The same is true for recessions

When the economy is stable, people become optimistic.

When they get optimistic, they go into debt.
When they go into debt, the economy becomes unstable.
When it’s unstable, you eventually get a recession.
A lack of recessions plants the seeds of the next recession, which is why we can never get rid of them. In other words, stability is destabilizing — something economist Hyman Minsky figured out half a century ago.

It’s one of the most useful observations in investing because it explains why volatility is both inevitable and caused by people acting reasonably.

Here’s why this is important

If you view every debt-fueled recession, market crash, and asset bubble as an example of your fellow people acting crazy, you might become cynical, which makes it hard to be a long-term optimist, even when you should be.

If you view them as inevitable, you realize they’re just part of the ride and an occasional reminder that the fasten-your-seat belt sign should never be turned off.

None of this is fun, but virtually all of it is inevitable.

Try to enjoy the ride.

This is 100% copied from “Morgan Housel, The Collaborative Fund”. I found it just distilled what is happening so well that I didn’t want to change any of it.

So how does this affect Real Estate and more importantly… Real Estate in our area?

Because inventory is so low right now, even a notable drop in buyer demand shouldn’t result in a housing market crash. If anything, what it might do is open up the housing market, allowing financially secure first-time buyers to finally have a shot at owning property as well as real estate investors to scoop up income properties more affordably.

Should homeowners be worried about a recession?
Right now, homeowners are sitting on record levels of equity. But even if a recession hits and home prices drop, they shouldn’t fall to such low levels that equity is wiped out.

In fact, because the housing market still sorely lacks inventory, a near-term recession could actually end up minimally impacting home values. That’s something current property owners can take comfort in.

And it all comes down to that all encompassing question – Is now a good time to buy/sell?

I don’t view Real Estate as a short term investment – either for your home or as a pure investment so 1. If you are selling and buying in the same market and in a similar price point, the market volitivity doesn’t really matter. and 2. If you are holding property for 5+ years, it will increase in value.

There are a couple scenarios when it’s prudent to consider timing (moving way up or significantly downsizing) and if you want to discuss in detail, reach out to us and we can chat about it.

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