How long will these home prices continue to go up like this? I get that question quite a bit these days. Here we are launching into October of 2021, with the Stock Market having one of it’s “worst weeks” and worst months in years… Historically, we’ve associated Real Estate with the Stock Market. Is another Recession eminent?
The 2008 Recession showed us that Technology and Social Media play a major role in how we experience and react to downward-sloping markets. We’re lightyears ahead of where we were 13 years ago, so what should we expect in the future?
- Will Home Sellers panic at the bottoming out of the Stock Market and take their homes off of the market, or wait to sell?
- Will Buyers back out of their contracts due to fears of their contracted house devaluing sharply while they’re waiting to Close or shortly thereafter?
- Will Investors stop buying rental property and hold, or list large portfolios of properties immediately?
- Will Builders go under and have to file for bankruptcy?
- Will Mortgage Rates skyrocket?
- Will Homeowners walk away from their homes causing a surge of foreclosures nationwide?
I could keep producing “Fear-Questions” for the sake of this blog, line after line. With today’s Media the way it is, you’d think Revelations was beginning tomorrow!
Let’s discuss how different things are in 2021.
Social Media Changed The Landscape
In Quarter 3 of 2008, there were 100 million Facebook Users. Compare that to Quarter 3 of 2021 (to date) with nearly 3 billion profiles – according to Statista. We’re estimated to have around 7.8 billion people on Earth. Digest that for a second….. These 3 billion Facebook users have Worldwide information instantly at their fingertips.
With information spreading at the fastest rate in history (imagine Paul Revere on his panting horse), Financial Advisors, Portfolio Managers, C.P.A.’s and other top financial sector professionals have the ability to trade and communicate instantly on their smart phones.
Focal Point #1: People are able to witness, react, and communicate faster than they ever have in history.
Middle Class & Median Household Income
Take a look at these articles produced by the Pew Research Center:
Article 1: August 2012
Article 2: January 2020
I hate calling it the “Great Recession,” honestly. It didn’t compare at all to the Great Depression of the early 1900’s. I’m going to call it the ’08 Recession.
What do we know? We know that there was a series of events that led to a major spike in the Unemployment Rate. We also know that there was a big jump in mortgage rates, according to FreddieMac. Stanford University also put together a great research memo on the halt of Consumer Spending during the ’08 Recession.
As of September 2021, we’re enjoying the near-lowest mortgage rates in history, employment is currently stable, and Americans are allowed to be around one another in public again (to work/spend money). Middle Class households contribute exponentially to the cyclical flow of money in the Economy. They also represent a large number of Business Startups (helping produce jobs) and have a propensity for increasing entrepreneurial activity.
Focal Point #2: Our Middle Class is still growing in 2021.
Pay close attention to the population size and financial health of the Middle Class in the future. Also, Median Household Income numbers indicate a person’s ability to buy goods and hire services, catalyzing the flow of money through America. Both are key market indicators.
If those factors change in a negative fashion, we could see a change in the Supply/Demand of the housing market due to people not being able to afford their mortgages. If a very drastic spike in the number of homes being sold arises, that will be a very bad sign. Right now we aren’t seeing that.
The Fabric of Technology
Visualize a piece of carbon fiber. If you reduced it all the way down to one strand, it would break easily. Right? But give it thousands of other strands, weave them together, and you have one of the strongest, most-efficient materials on the planet. That’s how technology can be.
Let’s look back.
In 2008, AirBnB was founded, but was not known about yet.
The App Robinhood wasn’t invented until 2013.
Companies like E*Trade, Fidelity, Schwab, and TD Ameritrade didn’t have apps! They were probably still developing their internet websites.
Why is that important? The speed at which a trade can be triggered, and the processing of the buy/sell of an investment has changed dramatically since the ’08 Recession. An Investor in California can bust out his smart phone, sell all of his stock on the Schwab app, and sign an offer on an Investment Real Estate Property during his lunch break. He’ll still make it back to the office in time to putt 3 golf balls into that sideways coffee cup on the floor too!
We are indubitably in a different atmosphere with our investments in 2021. Technology allows us to witness in real time what mortgage rates are doing. We can research long term bond yields in seconds. Someone in San Antonio may text their cousin in Tokyo and ask what markets are doing ahead of the oncoming trade day. We even have automated trade triggers that sell stocks if they drop to a certain price (See Stop-Loss Orders).
Focal Point #3: Technology will dampen the blow and speed up the recovery of our next Recession. It also probably deserves credit for preventing a Recession during the Coronavirus Pandemic in 2020.
Decades of Home Prices
Since 1966, property values have done nothing but increase. They’ve also experienced more volatility, with increasing elasticity (peaks and valleys) since the emergence of this technological era (post-2000). This aligns with the atmosphere of the Stock Market as we know it in 2021. Volatility as far as the eye can see.
Surprisingly, Inflation Rates have fluctuated decade by decade. In 2021, we’re still very well below some of the highest inflation rates we’ve experienced as a Nation. It’s rising currently, so we need to be aware of it. But not a major problem to date.
The (CPI) Consumer Price Index, and the value of the dollar have behaved inversely of one another through history. The cost of goods and services have maintained an upslope, and the value of the dollar has consistently dropped. This explains the need for higher wages & salaries to support a consistent Standard of Living. This helps me understand the need for a higher minimum wage in areas like California. But it varies by state, which is why I support Minimum Wage changes being a state legislative decision. Either way, it’s been necessary.
Focal Point #4: Property Values will continue to rise throughout the foreseeable future, like they have for the last 100 years. Remember, down markets are the best time to buy.
Fuel & Oil Prices
You’ve survived this long! Wow. Thank you so much for sticking in there with me.
In 2008, I identified as a musician. (Little bit of identity humor) I was mid-College and volunteering at a Church, for no pay. But I was fortunate to have a part time job at Pan-Am Dental Lab in Savannah, Georgia thanks to President Jim Hitch (someone I’ll always love and admire) and Rembert Roux. I remember stopping at a BP Station in a community called Thunderbolt after filling up my Scion TC without paying attention to the gas prices – and OVERDRAFTING in my checking account after realizing that gas was $4 a gallon! It wasn’t pleasant, but I’ll always appreciate that hunger and what being broke taught me.
Getting back on track – Fuel prices cut deeply into the pockets of the Average Household Budget. We’ve already mentioned Median Household Income being a key economic indicator. Rising fuel prices lower our net monthly income (sometimes greatly), and they cause the cost of goods to rise. Do you think Home Depot, Wal-Mart, and Target are going to take the hit on rising transportation costs for the items they sell in stores? I think not. That’s getting transferred onto us, the American Consumer.
That’s why the shutdown of the Keystone Pipeline was such a big loss for our Nation.
Focal Point #5: Gas prices play a major role in the health and security of our Economy.
Conclusion: Nature Instinctively Finds Balance
It’s human’s innate determination to progress and succeed that will allow society as a whole to trickle it’s way through our toughest obstacles. Just like clear water flowing through a rocky Tennessee mountain creek, Man will inherently bend and move in a manner that creates balance & opportunity within the financial markets. This includes Real Estate, and we’ll always recover. People in high financial positions will make decisions that give the common person the opportunity to overcome the downswings of a bad market. Everyone experiences a Recession differently. Will other top leaders make poor decisions and cause loss? Absolutely.
The ebbs and flows will continue their tango, forever. It’s survival of the fittest. As long as we manage and make ourselves aware of the intensity of the swings and dips, we’ll always be able to withstand the dance.
Now, with all 5 Focal Points accounted for and the reasoning explained as well as possible without writing you a novel… I’ll answer your question, “Do I think the Real Estate Market will go into a Recession any time soon?”
No. You can stop panicking.