When taking a hard look at the facts from many credible sources, such as Inman News, Fannie Mae, and interviews conducted on CNBC, it’s hard for me to conclude that a recession is imminently near. Perhaps only Chicken Little would take this stance. Let’s take a look at some statistics that say otherwise before we look up to see if the sky is falling.
Current Economy Statistics
- The reported inverted yield curve is 1,000th of 1% inversion
- Builder confidence rises in August 2019
- Builders’ Housing Market Index rose to 66
- According to National Association of Home Builders and Wells Fargo
- This index has risen 2 months in a row
- Deputy chief economist at First American, Odeta Kushi was quoted as follows
- Builders’ Housing Market Index rose to 66
“Homebuilders are reluctant to break ground on new projects if they fear the economy may slump later. Likewise, consumers are hesitant to make a large investment if they fear losing their jobs.”Odeta Kushi, Deputy Chief Economist at First American
- 8% point increase in the net “confidence about not losing job”
- Buyer traffic is up 2 points to 50
- Above 50 is positive
- Single-family housing starts increasing 1.9% month-over-month & .6% year-over-year
- In the past, a decline of 20% or more in single-family housing starts was present in all but 1 recession in US History
- We are positive and increasing
- 22% less homes are being left vacant or abandoned according to a Attom Data Solutions study released this month
- Zombie foreclosures cut in 1/2 to 9612
- Home Purchase Sentiment Index increased 2.2 points in July to 93.7
- Record Survey High
What do you think?
After reading all of those statistics, let me ask you, are we going into a recession? We must be mindful when reading the news; no matter the source, news sensationalizes stories. They’re focused upon getting the most clicks and eyeballs that they can. Facts may be presented, but with a certain narrative in mind. They are selling stories, and that’s why when you focus on trending headlines or fail to dig behind facts, it is easy to get depressed or worried; this is somewhat akin to being stuck in a movie, with reality a distant subtext.
When trying to break news, history or facts in general down, I tend to extract the key details from many sources and compile them in a document. They can then be examined and researched further, or not, and I may draw my own conclusions. This keeps me centered so that I can make sound financial decisions when studying things such as the economy. It’s also quite fun to see how front page news panned out over time.
Napa Valley Real Estate Market
Right now the Fed just cut interest rates, and California real estate is still a very good investment. Let’s take a look at the Napa County real estate market, and calculate the market condition.
We calculate this by determining the months of inventory available. This is done by dividing the monthly listing number (for sale) by the monthly sold number (sold). We get 3.6, which is exactly what we got for Napa County in June of 2019 as well. Any number under 3 indicates a strong seller’s market, and anything over a 6 indicates a buyer’s market. We are still in a seller’s market, but not as much so as last August, when this number was a 2.9.
Currently, buyers’ power is positively impacted by historically low interest rates. Demand for California real estate is very high, which drives median sales prices higher. That being said, the median price is definitely softening right now, and inventory is up over last year. If you don’t buy now and less favorable conditions arise, you may lose out on the opportunities that are available right now. Here, you can take a look at what’s available to you.
Yes, it is important to watch prices because they fluctuate throughout the year. Let’s look at January through March of this year. Buying power might have been higher with months of inventory at 4.6, but interest rates were also higher, negatively impacting a buyer’s bottom line. There are always tradeoffs.
Is it a good time to buy, or is it a good time to sell?
Right now it is a good time to buy, and it is a good time to sell. The interest rates give you an edge to combat the fact that it is still a seller’s market. It is not a cakewalk for sellers though; buyers are looking for turn-key homes. That means older, outdated homes might spend a longer time on the market, and they may not net the highest sales price.
Buyers can also look forward to 2 additional rates cuts this year, as predicted by Fannie Mae.
There are deals to made and deals to be had.
If you want to sell, you can still maximize your profits. If you want to buy a home, you can still find a deal.
What if we do go into a recession?
If you are a buyer that is holding out for cheaper prices and even lower interest rates, let’s look at the risks that you face if we do go into a recession.
- During a recession, it can be tougher to get approved for financing on a home according to Debt.com, but it CAN be a good time to refinance and lower your mortgage payment.
- Waiting to purchase a home during a recession does not guarantee you a steeply discounted price. 2008 was a special case, with an astronomically sized bubble of bad mortgages causing home values to plummet after countless owners defaulted on their loans; the low home prices we saw were not typical for a recession. Also, with housing shortages as is, this could prevent prices dropping as low as expected during even a normal recession.
Recession Proofing Your Finances
You can make sure that you and your family are ready for whatever does happen in the United States economy by planning. Below is a list of precautions and initiatives you can take on to prepare your finances if we do go into a recession.
1. Don’t borrow against your equity
- Your equity is your interest in your home’s value, or the portion that you “own” at that time
- Your home’s value minus the portion that you owe to creditors is your equity
- Your equity increases as you pay down the portion that you owe
- You could end in an upside-down mortgage if you end up owing more more than your home is worth
- This means what you owe on your 1st loan and 2nd loan total more than your home is worth
- Protect your investment by living within your means
2. Reduce your credit card debt
- Interest payments are high for the luxury of spending when you don’t have the cash
- Put a plan in place to pay off your cards by a certain date
- Look into consolidating your debt and no longer charging on credit
3. Build an equity cushion into your mortgage
4. Refinance with the current low interest rates available
- Lower your mortgage payments
- Increase your power to save money
5. Review your investment portfolio and make sure you are okay with the risk levels
6. Save 6 months of monthly expenses in case of job loss
- Never say, “It’ll never happen to me.”
- Being prepared for job loss or unseen medical expenses is just smart
We can expand on any of the above topics; if you’d like more details on how to put a plan in place to implement them, please request one in the comments below.
Still have questions?
If you have questions about the Napa County real estate market, the current value of your home, or if you are looking to buy or sell, please don’t hesitate to reach out to us. Either start a chat below, or call and email us using the contact info on the home page.
The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.