I have to admit it has been quite enjoyable sharing with you the incredible volume of mostly positive news we’ve had in our Austin home sales market the past 7+ years. However, I’ve always tried to share any negative news that comes along, too, so you know I’m not presenting only the “good stuff”. Recently, I’ve been hearing more and more about the possibility of our next national recession. This is based on something called an Inverted Yield Curvewhich has predicted every recession and associated bear market that we’ve had in the United States since 1950. SEI Investments Company’s research shows that a recession and bear market comes on average one year after the Yield Curve inverts. The S&P 500 index’s rise during that year averaged 10% over the last 68 years.
The most common year I’ve heard this is likely to occur is 2020 (one article I read even pinpointed it to start in the 1st quarter of 2020). Google “recession in 2020” and you see sites like Business economists worry about a possible recession in 2020; The Recession of 2020 | PIMCO; Zillow: Experts predict next recession will hit in 2020; and Thinking of selling your home? Do it before 2020, economists say …. The issue of selling your home is why I mention any of this to you.
Since the Great Recession, we’ve had 3 phenomenon, in particular, that have helped shaped who is a current homeowner in the U.S.: 1) Large institutional investment companies bought literally thousands of homes during the height of the recession. They have rented these homes out and watched the net equity of their portfolio increase dramatically after the recession ended in June, 2009; 2) Homeowners who bought just before the recession hit which dropped their home value enough that they owed more on the home than it was worth (ie - “under water”). Some have waited it out by staying in the home until values came back, some went into foreclosure/short sale during the recession, and some simply became what I term “temporary landlords” The latter needed to typically transfer due to a job, upsize due to needing more room, or even downsize in the middle of the recession. They decided it best that they hold onto the home temporarily until home values came back and they could sell at a profit. However, the rising property taxes we’ve seen in Austin the past few years have put a real squeeze on net income for landlords. Believe me, I know...I’ve been a continuous Austin landlord for over 30 years and it has become tougher and tougher to eek out a profit with these increases; and 3) Homeowners who wanted/needed to move like those in #2, but decided it best to wait in place by remodeling or adding to the number of people in the home to cut costs (some with boarders, some with kids moving back in). Each of these 3 groups--in large part--now have sufficient equity due to the strong single family market the past 7 years, but the equity is tied up in a non-liquid asset (ie - cannot be converted to cash quickly).
We’ve had plenty of home buyers during most of the 7-year bull run in our real estate market. And, they are still there, but many are frustrated with the difficulties of finding a home due to our very low inventory which stood at 2.5 months thru April of this year. Less than 6 months is a seller’s market (ie-they have the advantage since there are more buyers than sellers) and over 6 months is a buyer’s market. This can change rapidly if, in fact, we do get a recession in just over 1.5 years. For instance, when we came out of our buyer’s market after the recession in spring of 2011, our months of inventory dropped from 8.4 in January of that year to 5.7 in March and never went above 6 the rest of the year. We averaged 6.7 months in 2010; 5.3 in 2011; and 3.6 in 2012. All real estate markets run in these cycles of going from a buyer’s market to a seller’s market and vice versa. And, our rising mortgage rates are pushing more home buyers out of the market so that will affect our future home sales, too.
Recessions don’t make it impossible to sell one’s home, but the market turns soft and things take longer to sell and prices usually flatten or drop (like the last recession). My concern about the next recession is the snowball effect we could have once homeowners in the the 3 categories mentioned above start to sell in increasing numbers. Panicked homeowners who see things turn down rapidly in the recession put their home on the market to capture their large equity. As this happens more and more our real estate market quickly turns from a seller’s market to a buyer’s market as mentioned above. Flooding the market with homes will definitely have a sobering effect on the market and will likely lead to price drops.
If you fall into one of the 3 categories mentioned above and want/need to capture your home equity, it might make sense to sell sooner rather than later. Assuming the recession hits in 2020 means that next year is the last one to sell at these higher prices. Even though well priced homes in good condition sell year-round, our highest sales volumes occur in spring and summer months. So, the next 12 months or so just might be when you should sell to capture that equity. Contact me today so I can create a free, no-obligation market analysis (CMA) for your home to see how much it would sell for, how long it should take to sell and how much you could net from the sale.
Having said all of the above, I need to also state that Austin was much more resilient to the effects of the last recession than most other cities (I like to say we were the last to the recession party and the 1st to leave) so the next recession may not be too bad for us, either. And, if Amazon does, indeed, open their 2nd headquarters here that would likely have a very big positive effect on our real estate market which could offset the negative aspects of a recession. Only time will tell about both of these.