- Aug 24, 2007
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MODERATOR NOTE:
THESE POSTS WERE EXTRACTED FROM A CONVERSATION ABOUT "BUYING A HOME."
BECAUSE THEY DICUSS THE POTENTIAL FOR A RECESSION, THEY WERE COPIED AND EXTRACTED INTO A NEW THREAD.
Real estate indicators don't make it seem we're necessarily at a top, but in most recessions, real estate doesn't lead the downturn -- it's a lagging indicator. 2008 was an exception, and because of it, many new investors incorrectly believe that real estate is typically the *cause* of the recession, and generates leading indications of an economic downturn.
But, that's not generally the case (hardly ever, in fact)... Typically, it's the business cycle that gives way first, leading to increased unemployment and wage depression, which ultimately leads to a turn in the real estate industry. Real estate starts to turn a few months after the rest of the economy.
With that said, how is the rest of the economy doing? All indications are that the business cycle we're currently in may be coming to an end. Some of the most reliable indicators:
- Full employment
- Flattening yield curve
- Rising interest rates
- Consumer credit at a peak
- Reduction in GDP (especially immediately after a tax break)
- Wage and real inflation increasing
(Note that the first two -- full employment and an inverting yield curve -- are almost perfect indicators for recession in the United States.)
And if you just look at the statistics, we're currently in the second longest business cycle in recent history, so just based on timing, we should be expecting a turn in the near future.
I know a lot of people disagree with me on this, and I'm the first to say I don't have a crystal ball, but I'm confident enough in my assessment that I have completely reorganized my real estate business based on the current economic conditions and my perceived implications of them.
THESE POSTS WERE EXTRACTED FROM A CONVERSATION ABOUT "BUYING A HOME."
BECAUSE THEY DICUSS THE POTENTIAL FOR A RECESSION, THEY WERE COPIED AND EXTRACTED INTO A NEW THREAD.
Why?
Real estate indicators don't make it seem we're necessarily at a top, but in most recessions, real estate doesn't lead the downturn -- it's a lagging indicator. 2008 was an exception, and because of it, many new investors incorrectly believe that real estate is typically the *cause* of the recession, and generates leading indications of an economic downturn.
But, that's not generally the case (hardly ever, in fact)... Typically, it's the business cycle that gives way first, leading to increased unemployment and wage depression, which ultimately leads to a turn in the real estate industry. Real estate starts to turn a few months after the rest of the economy.
With that said, how is the rest of the economy doing? All indications are that the business cycle we're currently in may be coming to an end. Some of the most reliable indicators:
- Full employment
- Flattening yield curve
- Rising interest rates
- Consumer credit at a peak
- Reduction in GDP (especially immediately after a tax break)
- Wage and real inflation increasing
(Note that the first two -- full employment and an inverting yield curve -- are almost perfect indicators for recession in the United States.)
And if you just look at the statistics, we're currently in the second longest business cycle in recent history, so just based on timing, we should be expecting a turn in the near future.
I know a lot of people disagree with me on this, and I'm the first to say I don't have a crystal ball, but I'm confident enough in my assessment that I have completely reorganized my real estate business based on the current economic conditions and my perceived implications of them.
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