Should You Buy a House Now or Wait for a Recession?

Buy now or wait for recession?

Hello everybody, welcome to Talk About House. I’m Todd and I’m Moana. Today we’re going to talk about the potential upcoming recession, and what could happen to the real estate market. Everything that we’re going to talk about is based on an article that was in Forbes or Bloomberg, the housing market in mid-recession, fears, should you buy now or wait?

Before we go to the first quote of the article, let’s talk about timing the real estate market. This is a sort of hot topic of mine. If you’re sitting on cash, what are some risks of waiting to buy? Let’s see, you don’t get the house you want because that floor plan doesn’t come up that often, that lot is never going to come up again. You may pay more in the future. You are missing out on living in the house of your dreams. Interest rates might not go your way.

What are some benefits of waiting? Well, the crash Bros were right, and you’re going to buy it for pennies on the dollar, possibly. Well, I wouldn’t say pay pennies on the dollar, 98 cents is Pennies on the dollar, it’s 98 cents on the dollar. There could be some weather event, and the roof blows off the house, but you don’t own it, so you don’t have to worry about it. You have more time to save for down payment. Interest rates historically dropped during a recession. It gives time for the neighbor that you don’t like next door to move, so maybe you don’t need to sell or go away. Here’s another benefit: if more houses come on the market.

Let’s go through the article, read up on some of the things, and talk about them. Some of the stuff in here is interesting, some of it’s absolutely completely false. Today’s high inflation is triggered aggressive moves through the Federal Reserve, which is many economists worry that we’re headed toward a recession, which is true. That is the whole point of trying to kill off inflation, you potentially cause a recession to happen, which happened a bunch of times in the late 70s.

These concerns also come at a time when home prices are steep, and mortgage rates are rising, causing home shoppers to weigh whether they should buy now or wait to see if home prices drop from a potential recession. Let’s talk about that. Home prices dropping during a recession, that’s the conventional wisdom. The conventional wisdom is people lose jobs, there are fewer people that can afford to buy, so prices have to fall. That’s false. So, number one, that’s false, and I’m just going to put that out there.

The thing that bothers me is that everybody’s kind of jonesing for this recession to happen, and the bottom line is we had a recession by definition last spring, and we had one in 2020 when prices went up. We have a chart we’re going to show you. But we had a recession by definition last spring, which is two consecutive quarters of negative growth, so we had that. It was point one percent negative, so everyone went, “Well, we’re not going to count that one.” This thing where you get to pick and choose what is a recession, I’m not too fond of that. It is what it is.

When we have the next recession because recessions come, look, they’re cyclical, they will happen. It’s not a matter of if, it’s a matter of when. So when we have the next recession, the real question becomes how deep will it be, and how long will it last? And what will happen to the real estate market? Will prices go down?

You know we had this chart up, it said that, in six out of the last eight recessions or something like that, home prices actually went up, not down. One of them, they only went down like a very minor amount, but the point is that a recession does not equal home prices going down, the same way that a rise in interest rates does not equal home prices going down. This is a very complicated system. It’s not that simple. You guys are more intelligent than that to understand that this is not a green light-red light. Okay, there’s a whole lot in between, and you’re much more sophisticated than to buy off on that. Okay, so I’m gonna put the chart up. This chart is the information comes from CoreLogic.

You can just go Google this information. This is the last six recessions in the US. This is the ’81. The ’81 one now there was high inflation, so those price increases you’re seeing are inflationary. We have inflation now. Where the 9/11, which was a real, probably the worst economy we’ve had in a long time. It was the post-war, a ton of spending, and it was things were pretty bad, and then the 2001 one was the 9/11 recession, and then 2008 was a great financial crisis, which was caused.

Remember, a recession didn’t do anything to the housing market. How actually the economy was doing really good. We didn’t actually remember home prices start actually dropping at the end of ’06. They fell ’07. They fell ’08. They were already falling when the this is when all the banks were outed is carrying all this AAA paper with credit default swaps attached and all this, you know, lending and everything based on that that wasn’t true default.

There was basically like everyone was lending based on it. It was super low risk. It was super high risk, and that none of the portfolios weren’t worth what they were worth, right? And then 2020 they went up six different all of these were during recession so let’s talk about how this recession happens because we’ve lived through a couple of them. The economy starts to not do very well. You can see that there’s, you know, companies are having a problem spend these down the numbers are down. It takes six full months for them to actually, they could say they think we’re in a recession, but they don’t know until they measure GDP at the end of each quarter, right, right?

Okay, so usually by the time it’s that bad before we actually see the FED starts dropping rates, although that’s only for short-term rates. It that indirectly affects the 10-year treasury, which is what mortgage rates are based on, and actually the reason why the home prices go up during a recession is because mortgage rates start falling, and it’s remember they’re trying to get the economy going in so it sucks more people into housing, right?

And housing is a huge driver in the economy. Not only is it a huge purchase, but then everything ancillary that comes with a house, of course, you know, you’re getting new appliances, you get new furniture, all kinds of new things, and all of that is what gets the economy going. So that’s an important thing to understand, that the FED understands that housing drives the economy. Now what bothers me is that it just seems to me like the FED is still working with an abacus because we are in 2023, people. You know, news travels around the world at the speed of Twitter. Everything is computerized. Everything, all the data is readily available.

Absolutely not true. Like none of that is true,” he said. “Um, and you know this is part of what we’ve talked about on a previous video as far as bad news sells. Um, and there just doesn’t seem to be any honesty in this type of journalism. It just seems like people are spitting out information that they either believe or think will sell or, you know, something along those lines but not information that is based on data. There’s nobody that’s fact-checking this. Yeah, okay, so I’m going to give you a perfect example. Everybody here lived through COVID. You all remember it very distinctly. So what happened? The COVID virus was spreading. People were afraid of it because they weren’t sure what was happening. So we went through, we basically shut down the economy.

We basically said, don’t fly, don’t leave your house, don’t do anything, stay home. If you go out, wear a mask. Everybody said, screw it. I’m going to stay home because I don’t really know. They were talking about 4% fatality rates on the news that, you know, there was and saying, you know, and they were putting up these charts saying basically, if you’re over 50, who felt tired, it was like 25, and it was starting to scare people. Okay, the job losses were like off the charts, 20 something percent job losses. The GDP growth was the biggest negative growth like we’ve ever seen ever in the history of GDP. And you would think buyer demand would…

Oh, we had the highest rate of defaults, people not making the mortgage payment. We’re up to like four million. It was like over, it was like 2 or 3 percent of all homes were in default or more, or what was over four million homes in default. I mean, they hadn’t made mortgage payments, right? Guess what home prices did during… Exactly during that time, like we’re talking the six months of the recession. Want to do you remember what home prices did? They went up. That was the trigger that caused them to start going up. Home prices went up, completely counterintuitive. We are not saying if there’s a recession that starts in the summer and goes through the fall of next year, home prices will go up. Absolutely not saying that. What we’re saying is, all other things being equal, you can’t say that a recession makes home prices go down because it doesn’t.

If anything, if interest rates start coming down again, we’re going to potentially go through the same cycle where people flood in the housing market. Now, it’s also possible that sellers could say, okay, now I can move, so I’ll put my house on the market, and then I’ll go buy a house somewhere else because we’ve had a bunch of people come in the channel about how they’re waiting to sell one house and buy another house, so they’re just locked into their house because they can’t really move. You know, anecdotally, we had a seller that was interested in selling last, I think, October, November time frame, and, you know, we had the pictures done, we had all that good stuff done, and we were ready to put the house on the market. He’s like, not so much. I’m staying, and we’re like, okay, seriously, okay, fine. So he stayed, but guess what? His house just went in the MLS this week, so you know, people are starting to kind of get on with it. He wasn’t ready to sell then, but he is now, and he’s not the only one. Sellers are coming.

Trying to buy, called them up and said, “Hey, we’re taking it off the market, we’re just going to keep it.” So they called us, or they told their agent, “Hey, we decided to pull out the MLS, we’re rejecting their offer,” and the next day it was out of the MLS. Right, like actually it happened. Um, so that’s a real thing where, you know, if there’s not enough homes to transact, it’s a domino effect. And then the other thing too is, keep this in mind, prices are more volatile when you have less sales. When you have less sales, they’re more volatile.

So we’ve had volatility in prices because sales have dropped so much. That doesn’t mean more sales, there’s this belief that, like, less sales mean prices go down. Absolutely not. When prices were taking in ’08, ’09, and ’10, prices were way down. We were doing six to seven hundred listings a year, most sales we’ve ever made in our life were during that time. The numbers of sales in Las Vegas were out because everyone was getting foreclosed and all the houses were dumping in the market. The percentage of sales were literally off the charts, so there’s not necessarily correlation. We need when people say, “Yeah, but Todd, 34% down from last year,” who cares? It doesn’t really matter because we have more sales now than we had six months ago, but home prices are, you know, arguably less than they were six months ago, even though they’re starting to go back up.

Okay, here’s another quote from the article. Now remember this, remember the last quote I read. This is from the exact same article. “The reality is home prices don’t necessarily decline just because of a recession,” says Cushy. “Ultimately, supply and demand dynamics dictate the outcome for prices, and these variables differ based on geography.” Okay, so let me guess. It’s both day and night, it’s showing it was dead and alive, it’s Schrodinger’s cat.

Okay, uh, and there were two different people they interviewed, yes, in there. Okay, here’s another quote. We’ll talk about the housing inflation storm. So now what they’re saying is the housing prices, because of inflation, the housing inflation storm that pushed buyers out of the market seems to be decelerating. Even so, experts say prices will remain elevated, with CoreLogic forecasting a 3% year-over-year increase in national prices by the end of 2023. I don’t know that I agree with that. I don’t know, but I’m just saying there.

That’s what CoreLogic is saying: home prices, 3% year over year from 2022 to 2023. So for buyers keen on buying a home, regardless of whether there’s a recession, waiting for a big price drop could be a losing game. This is what I don’t like about trying to time the market. You never know. We bought a rental in the end of ’21, and we knew that we were paying more than we would have paid if we departed here ago. But you just don’t know. If the crash Bros are so in tune with housing prices in the beginning of at the end of 2019, why weren’t they… they were doing the crash videos. Why weren’t they talking about the 40% price increase in homes that they were seeing? Because they can see what’s going to happen in the future. They couldn’t see home prices going up 40% three years… like I can’t find any of their reasoning.

Go up 40, three years, right, right. So you just don’t know, you just can’t predict what’s going to happen. Well, not only that, but remember, everything’s very market-specific, so just because one market is doing poorly doesn’t mean another market’s not doing extremely well. And we’ve talked about this before, you know, it could be just that your neighbor next door did really well, and your neighbor three doors down did very poorly in the same time frame.

There’s a lot of um, there are a lot of different things to consider in the mix, and just because, you know, CoreLogic says that prices may be up three percent by the end of the year, you know, are they looking at three percent December to December, or are they looking, okay, it was December 2022. That was their prediction. They said, “We predict home prices would be up three percent from December of last year.” So if you wait and you think you’re going to get a deal, maybe, maybe. But the bottom line is, like we said at the beginning of the video, there are pros and cons to waiting, and you have to make your own choice. We are not saying go out and buy a house.

Okay, so please don’t write that in the comments because we are not, okay? Look, you know, there are all kinds of variables going on, but the idea that a recession is going to negatively impact home values, history does not prove that. That right? Does that mean that this recession will also end up in the green? We don’t know because there were a couple of recessions that were in the red, so that is a possibility, but it’s not an absolute done deal, and you know, you should really look at the totality of the information and of your situation in making choices. Okay, another one: the national median listing price for active listings in January of this year, 2023, was up 8.1 percent from January 2022.

List prices were up eight percent. Okay, 415, well, it’s down from the eye-popping June 2022 highs of 450. Sellers are still expecting top dollar for their property. So two things in here that really got my attention. That 450’s fantasyland. It was the culmination of people thinking, “I’m just gonna sell and get my money,” and all the people that said, “This is my last chance to get lock in a rate that’s not, you know, over five percent.” You had this mania, and people were crazy overbidding for properties. This was not people that are using this number today going, “Oh, but this is the baseline.” For no, it’s not. It’s not any sense of a baseline. You can’t try to say that’s a market equilibrium price.

It is a highly, highly skewed, disequilibrium price. Second thing: sellers are expecting top dollar for their property. Talk about how people are getting used to these prices, and they’re not, you know, they’ll put it on the market really high, and if it doesn’t sell, they take it off because you’re seeing a lot of that. Yeah. So look, uh, you know, but to me, it’s like any other market, right? Some people will price their properties high, and they’ll go fishing, right? That if they can find that crazy California buyer who will overpay because he’s clueless, great. Uh, I’ve got a news flash for you.

We are an asset management company who’s being told by their client, a mortgage lending company, a bank, a fund, or whatever, “sell this house and return me the money,” and/or “we won’t give you more assets,” so they were like, “we have to sell this house.” Like I get judged if I can’t sell it within 90 days, then like I get marked down and they don’t. They get my company less property. So we got to sell the house. This is forced to sell. This isn’t happening now. These people don’t have to sell. Anyone who’s got an under four percent loan does not have to sell, trust me.

They don’t have to sell. They can everyone can rent for more than they paid for like every single one. Okay, yep, okay, next quote. This is a quote from the article: “Based on the current amount of inventory in the market and the level of active buyers, I don’t foresee there being a substantial drop of the prices,” said Mike Berla, New York-based real estate agent at the agency. Not that I mean he’s a real estate agent but um his opinion anecdotally in his Market New York City which doesn’t really have an MLS, they’re not like if you go on like realtor Zillow they really don’t have all the properties because they have it’s they have their own system there and then they have a ton of rentals that’s a different market for rentals but it makes sense right if there’s not a lot of inventory and there’s a high buyer activity which there is right right because and some of that’s artificial right people are going back and remember everyone left and now people are going back right because prices are actually put down pretty much so they’re like okay let’s just go back right well prices are almost back to normal there.

Yeah, I mean it was funny because I looked at rents in like the end of 2020 and I saw neighborhoods in like the Upper West Side were like whole blocks where you know you look like these buildings with like 60 units had like 12-15 open units and they would never have that many open units and they were like a thousand-fifteen hundred bucks a month less than they had been you know like these places that were normally four thousand a month were 2500 right um because they were trying trying to get rid of them so people have come back actually it’s funny when we looked at that chart we looked at a couple videos ago New York City had a green circle it was up like 1.2 percent or something for the year. Here’s another one, this is my favorite quote from the article: “Regardless of market conditions, buyers should consider their budget, income stability, and emergency funds before they jump in today’s housing market,” right? Literally, that isn’t that fundamentally, but that’s fundamental in any housing market.

I mean, we’ve talked about this kind of ad nauseam, you know if you’re going to buy a house make sure that after close of escrow meaning after you’ve paid for your down payment your inspections your appraisal uh your closing costs after you’ve paid for everything you have a minimum of six to nine months of um of savings that means that if there’s something catastrophic that happens and you no longer have income you can afford to meet your financial obligations and live. Now I realize that that’s a lot of money but you know this is um this is Mom advice right this is Mom advice saying hey this is what you need in order to have you know it’ll be able to sleep at night to function and have a good life because without that you’re living paycheck to paycheck

One here on the other hand, trying to time the market can be missing out on your dream home. Did you read this article beforehand? I don’t think you did. No, trying to mistime the market can be missing out on your dream home. If rates continue to rise and home prices don’t drop enough to compensate for high loan costs, you can end up pricing yourself out of the market. This is a possibility. We’re not saying this will happen. We’re not trying to scare people. The opposite can happen. It could get better. But historically, like what’s a good analogy because if you look at the history of home prices, they tend to go up. It’s like playing a casino game, and you’re betting against the casino. Hey, the casino’s lost three hands in a row in blackjack, the blackjack table. I’m gonna jump in now because they’re on a losing streak, right? I mean, it makes sense. If you’ve lost three hands in a row, what are the odds of losing the fourth hand? Well, if you’re a casino, you’re the odds of losing are like 49 or 48.5, because I think that blackjack odds are like 98.5 or something, right? But we had a bunch of Vegas people, probably know that, but they’re not going to lose. Like the odds are that 98.5 is their ROI. That’s the return of you as a player playing against the house, right? If you played a hundred dollars one at a time, you’d have 90 dollars and 50 cents at the end, unless you’re counting cards or something, right? But look, as far as that goes, we all know that those billion-plus dollar structures were not built because people were winning in those establishments. We know that the house wins. So kind of keep that in mind, okay? I think that was it for the article. Um, obviously, there’s a lot to think about if you’re thinking of buying or if you’re thinking of selling. Someone came on the channel and said, ‘Oh, I bet nobody on this channel’s everyone’s on the sidelines. That’s why you’re saying the things you’re saying.’ No, absolutely not true. Put our money where our mouth is, and we do have people that have come to us recently to purchase large amounts of high, super high dollar homes with cash. There’s money out there for with to buy with cash. There is, and you know, look, every market, there are people with cash. In every market, there are people who need financing. This is not a new thing, and that’s fine, and it works for everybody. What we wanted to point out is that there’s a lot of information out there, whether it’s in print or in social media or television, wherever you’re getting it, and the information out there is, let’s just say unverified, and that’s probably the kindest way I can phrase it. Now, what we’re trying to provide you with is some verified information, historical information, so that you understand, and it has, and what you read out there, what you see out there, you’ve got context so you can better judge for yourself what’s going on in the marketplace, and you can make informed decisions for yourself regarding whatever your real estate holdings are or future real estate holdings. The reason I told you before that I was attempting to make a purchase in another market for a second home, etc., investment home, whatever you want to call it, because I believe in that market, in six

A purchase in another market for a second home, etc., investment home, whatever you want to call it because I believe in that market. In six months, home prices will be higher in that specific, you know, sub-market, whatever you want to call it, hyper-local market. They’ll be higher, and I believe that. I’ve been watching this market for years.

Another thing, a couple of macroeconomic things: there is anecdotal evidence that a ton of people have decided that they don’t like cash sitting around in banks, and they’re going to put that into some tangible asset that they have more control over that also gives them a return. That’s why a bunch of money has flowed out into real estate. I believe that money could be long-term sitting in real estate. Long-term, that would reduce the number of potential transactions.

The other thing, we believe that a recession, bad things happen, the housing market is because of job losses, but remember we still have this goofy thing where we create more jobs. We have more jobs being offered than we have people who claim they want to work, by about four or five million people, and that every month when they post the job numbers, they’re in the two, three, four hundred thousand range of jobs created. And yes, you can go see a company or laying off, and every time a company lays off, there’s this thing about how, oh, we’re laying off and blah blah, but then you really don’t make a big deal about it when all these companies say like every single airline will hire a ton of people this year, pilots, fly test skaters, mechanics, customer service people, ERs, baggage handlers. Every one of them is hiring a ton of people because those industries are growing, and people are retiring, but they’re all having to hire.

The last piece of super-anecdotal information: the stock market actually tends to start improving at the very beginning of a recession. Okay, that’s when the stock market tends to improve. You usually don’t get through that before the stock market. It usually looks ahead, right? As you know, we’ve been in sort of this bull market for the last year. Today when the market closed, or yesterday when the market closed, or two days ago when the market closed, Friday when the market when the stock market closed, the S&P was up again for the second quarter in a row. It’s never happened in a bull market ever where it went in the middle of a bull market. You had two consecutive quarters where the S&P grew. So now you’ve got all these people talking about, does that mean the bear market’s over? It’s or the bull market’s over? We’re back into a bull market where things are going to go again. Sorry, I meant to say bear market. It’s never happened in a bear market.

Okay, so you’re saying that we’ve been at a bear market, and we’re in a bear market, and we’ve had two consecutive quarters where the S&P closed high for the quarter. So from the beginning of the quarter, from the beginning, it’s the last quarter of last year, and you can Google it, but I’ve been reading this information from people who are basically saying, you know, this is interesting that this happened because as a lot of you know, you know, last year all the tech stocks got crushed really bad. Well, they did, and then all of a sudden at the end of the year, they took off. They took off like crazy. Well, and you know, and we’ve talked about so far, part of the reason why they took off.

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