Recession Obsession

January 1, 2019

The below post was written by Leonard Steinberg, President of Compass Real Estate and Residential Broker in the New York office. He wrote this post for an internal Compass email that is distributed to over 2500 agents across the country. I found his thoughts to be an incredibly insightful way to approach an inevitable recession - especially since the media seems to be obsessed with throwing this word around.
Being a wife of a Custom Home Builder and Real Estate Agent myself, our family will all never forget the dire times of the great recession as our professions were significantly affected. I have found that often when fear is an initial reaction, it means that additional research must be done!
As always, I am here is discuss our market conditions and I hope these facts provide some positive insight. We are lucky to have a very robust and diversified economy here in Seattle. For my full thought on the year ahead - read our ERH Market Predictions for 2019.
Emily Roberts

Recession Obsession - Written by, Leonard Steinberg.

When you take accurate inventory and state things the way they are as opposed to what you'd like them to be, chances are you will perform even better. ALL markets (good and bad) are challenging (especially when they change, and they always change) and ALL markets present enormous opportunities. For many agents at Compass, 2018 was their best year ever (even for those in markets that went into decline). For some, this was not the case. In 2019, focus on opportunity and in control of an accurate, balanced message about our markets.
I have repeated many times how the roller coaster we are experiencing in the equity markets pales next to past market declines. We need to remind ourselves that the US economy is in outstanding shape overall, with some residue being felt for assets that were over-valued and rising interest rates (because the economy is doing well). Trade wars and political uncertainty don't help either. While stocks are down for sure, the S&P 500 is up over 35% compared to 5 years ago.....and up 175% from 10 years ago. Today I want to address the annoyingly regular drone we all hear daily about how many believe we are entering into a recession and it's 'just like 2007-9 all over again. This is why I do not believe this to be the case:
  • Recessions are inevitable. It requires no genius to predict a recession is coming. Cyclically we are due for a recession. After periods of strong growth come periods of declined growth or some retraction. it happens is guesswork. How deep a recession is matters more: No one knows for sure.
  • 2019 may just turn out to be a period of SLOWER economic growth. Slower growth is not a recession and is actually good as it puts brakes on the Fed's will to raise rates....which is good for real estate.
  • We mostly remember the most recent recession which was much closer to depression, possibly the worst ever. Most recessions don't come even close. The world and economy don't stop even in the worst recession.
  • We have experienced 9 straight years of growth, one of the longest expansions in US History. Unemployment is at record lows.
  • Housing bubbles and recessions are not the same. Some areas have seen extreme pricing inflation, while others have not. Most pricing inflation is a result of low inventories and under-supply of certain properties: We have UNDER-built (by millions) certain classifications of homes, entry-level homes.
  • $19+ trillion in cash is on standby.... which is a lot of money to buy 'bargains'. The more bidders at an auction, the smaller the 'bargains'. This is possibly the most important pricing stabilizer.
  • Around and before the 2007-9 Great Recession, homeowners used their homes as piggy-banks and refinanced and withdrew around $800 billion of equity from their homes: this time only about $185 billion has been withdrawn.
  • Sub-prime mortgages have made a bit of a comeback but represent a fraction of what they were pre-2007.
  • Of the past 6 recessions, only 5 recessions have produced sharp home pricing drops.
  • Lending standards and banking regulations are very different today compared to 2007-9: They are MUCH stricter.
  • 34% of all American homeowners have 100% equity in their homes. (ATTOM Data Solutions)
  • 14 million American homeowners - roughly 25% with a mortgage - are “equity rich”: Their debt is less than 50% of their current home value.
  • Foreclosures filings in 2018 remain very low compared to 2008.
  • More than 50% of the loans in foreclosure in April 2018 originated between 2004 and 2008.
  • There is a group of people who either want a recession or want everyone to believe a bad recession is inevitable: many of these people are the traditional gloom-and-doomers, but several are hoping for a recession to be able to buy bargains. Some of the greatest fortunes are made by buying distressed assets: during times of distress, there is a shortage of liquidity and those with the cash or access to financing can step in and name their price. Today, there is a VAST pool of cash on standby.
In 2005, over 7 million existing homes were sold in the USA: During the peak of the Great Recession (2009) - the worst recession of our time since the Great Depression - over 4 million homes sold. About 5.5 million homes were sold in 2018. LOTS of homes sell even in the worst recessions. Transactions happen in ALL markets: we facilitate them. This could be your best year ever if you remain the calm force of reason in a storm of salacious headlines. Work hard. Focus on the facts. Don't deny them, work with them. Seek new opportunities. SOAR!

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