The big question remains “Are we going into a recession?”
The Federal Reserve has been raising interest rates for a year, but not this month. So instead, the Fed has
paused to gauge the economy's strength. While employment is still substantial, there are
other signs that the economy is slowing and may finally enter a recession later this year.
The real estate market today is a strange one in that the real estate market is strong, so strong that
entry-level houses are receiving multiple offers and once again increasing property values, and yet
overall real estate sales are down dramatically.
The reason is the Covid impact of lowering mortgage rates to record lows of 2.5-3.0%. Because
of this, homeowners are holding onto those low-rate mortgages like gold and not selling, keeping
housing inventory at record low levels.
This is excellent news for those that dared to pull the trigger and invest in real estate and terrible
news for those that didn’t. Over my long career, I have seen this scenario play out over and over again,
where doubting Thomas just can’t get themselves to invest in real estate, and they pay a high price by
losing the wealth growth of real estate.
There is no doubt that the economy will slow at some point. The question is how soon and what
this means to the economy and, most importantly you. Most economists are projecting a slower economy
from the fourth quarter of this year through the first quarter of next year.
This means the stock market could struggle if the economy slows significantly with job losses.
However, the economy slows modestly, and job losses are minimal. In that case, interest rates will decrease, and
stock investors will see this as a buying opportunity to increase stock prices.
But in either case, real estate will benefit because mortgage rates will come down, and the gap between
todays 30 year fixed mortgage rates of the 6.25-7% range (depending on the credit score, down payment,
and type of loan) and the record-low rates will narrow, encouraging those that have sat on the sidelines
from selling their property to leaping to the next property.
The story's moral is don’t wait on investing in residential real estate. Commercial real estate is
completely different story for another time!
