All anyone can talk about these days is the recession. When will it happen? Is it already happening and we just don’t know it yet? And for lots of people, this will be a major factor in their decision on when to make that leap from a renter to a homeowner. The truth is you can survive these crazy economic times. Join in as David Sidoni dives deep into all the data to help give you a clear picture on what to expect. It’s okay to feel fear when it comes to the economy because inflation keeps on rising. What you must do is to be prepared for what’s going to happen next.
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Is The 2022 Recession Already Here?
How The Recession Will Affect Things For A First Time Home Buyer
Do not believe all the negative headlines when it comes to the 2022 housing market. Let me be the only old man to tell you that’s a cap. It’s still a hot market. Home prices are going up. There’s still massive demand. What about the coming recession that everyone is talking about? How is that recession going to affect housing? The logical answer for this would be for home buyers to back up and say, “I’m going to wait and see.” It’s time to discuss the recession and how it should affect your buying plan. Let’s go.
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It’s time to talk about the recession. This is very exciting. Everyone out there has an opinion on the recession, so I’m going to do my best to spit the real facts like I always do and let you make your own informed opinion. I seriously have no time for small talk. I’ve been in super geek mode, hunkered down in the nerd cave, doing tons of research for the last episode on inflation. The recession episode gets so heavy that I’m going to break it up into two parts. Let’s get started.
Definition Of Recession
What is a recession? A recession occurs when there is less trade and economic growth. You’re like, “What the hell does that mean?” Let me keep going. One standard defining factor of a recession is that we have a declining GDP, which is Gross Domestic Product, for two straight quarters. If you are straight up brand new to all of this, we break the year into fiscal quarters. That’s every three months.
Two-quarters of the GDP dropping means that, technically, we’re in a recession. We’ve already had that happen in 2022. You’re like, “That must mean we’re in a recession.” Hold up. We’re going to get to the analysis because everyone’s trying to figure out whether we are in a recession or not. This is a very Ross and Rachel moment. I’m serious. The economists are all out there arguing, “Are we on a break or not?” There are different theories about hookups with acuity from the coffee shop.
First, let’s figure out what a recession is, and then we’re going to figure out if we’re in one or if the forecasts of a coming recession are on point. First up, stop tripping. Recessions happen. You’ve been living in the biggest boom in history. Check out Episode 122 for my fantasy land truth bomb that I dropped. It’s about this crazy economy we’ve been having for the last couple of years. Cycles usually happen naturally in global markets. In fact, this cycle should have cycled already. We are seriously way past due.
Shout out to all my OG homies that knew I talked about a coming recession in 2019. Way back in Episode 29, I told you guys we were due, but things kept rolling along. It’s time to make sure that you understand and realize that a normal standard regular economy is one that is cyclical. It goes up and down. There are peaks and valleys, expansions and contractions, and highs and lows. There are dank times and weak sauce economies.
[bctt tweet=”We’ve got another recession coming so let’s be ready instead of angry.” via=”no”]
Bull and bear markets usually happen at 3 to 5-year cycles. They go up and down. Remember, a bull cycle is up because a bull jabs up with its horns. A bear cycle is down because bears strike down with their claws. That will help you always remember that bulls are up and bears are down. We have been in that upcycling or that bull market for decades, and being in a bull market for over a decade is not normal. This is way too long. Let’s talk about the recession because it’s coming sometime. Before we get there, I’m going to do part two of my rant to the Millennials who are freaked out about all the problems they’re having in the economy.
To all the millennials on TikTok that are freaking out about, “I’ve lived through such crazy economic times,” you best read the last episode, Episode 122, where I dropped the truth bomb on you. If you read closely and understand the historical facts, you would be embarrassed by your recency bias. If you started making money in 2012 or any time since then, you have only known an up economy. I don’t tell you this because I want to embarrass you for being pissed off about all these terrible recessions you’ve known about in your lifetime. I tell you this out of love. We’ve got another one coming, so let’s be ready instead of angry.
I want to help you win with the hand we are all about to be dealt. I’m telling you this out of compassion and empathy. Drop the rage. Release the anger. Put all that energy into education and preparation so that you can get the best in whatever we’re all going to be handed. Let’s figure it out together. Are we in a recession? You don’t know you’re in a recession until you’re past it. Typically, they don’t officially report that you’re in a recession until a year after it’s passed. That’s why we’re saying this one is coming, but it might barely be here in the summer of 2022. There’s more on that Ross and Rachel debate of, “Are we or aren’t we?” in a little bit.
Real Economic History
Let’s talk about some real economic history. This data is crucial. This is how all the ballers made their money in the past. They see what happened in the past and then use that data to work in the present for the predictable future. There are a lot of people that are freaking out because they’ve got some recency bias. They’ve either been adulting or pre-adulting and remember that last fatty recession. It was the second worst we ever had in 2008, only behind the Great Depression.
Let’s dive into history. This is how you’re going to succeed in anything. Understand and know your history. Hitler was defeated because he didn’t study Napoleon. If you don’t understand that, google it, or you can watch the battle of wits in Princess Bride because Vizzini mentions it too. According to the National Bureau of Economic Research, there have been 19 recessions in the United States, with 7 of them from 1854 to 1945.
I know what you’re wondering. You’re like, “What do those have to do with anything?” There was an industrial revolution in there somewhere, and we’re going through what has been another technological/industrial revolution over the last couple of years. I digress. We won’t use those seven from 1854 to 1945. Those recessions were in a slower-moving economy and a slower-moving society. It was the pre-tech boom of 50 or 200 years.
Those recessions lasted an average of 21 months, but since 1945 up to the last one we had in 2008, we’ve had twelve. That means they’re happening a lot quicker because from 1945 to 2008, we had twelve. They also end quicker. That’s because of this new larger-sized economy, the amount of money we have in the system, the technologies involved, and the new speed of society. Since 1945, recessions have only lasted eleven months.
Correct Formula
Things are working the way they usually do. The regular pattern is 3 to 3.5 years of growth followed by 11 months of recession. That’s the correct formula to keep the pot from boiling over. Do you want to know what’s going down? Let’s talk about the last four recessions. We had one in 1990 and 1991. It was about eight months long. That was a recession that happened during the Gulf War oil price increase. We had the dot-com recession. It was in the late ’90s to about 2001. That was the internet and tech stuff being so overvalued because everyone got so excited about it. Everything fell apart, but here’s the deal. It was followed by seven good years of growth.
You all remember the Great Recession that was in 2008. Technically, it was from December 2007 to June 2009. We bounced back completely by around 2012 and 2013. It went straight up from 2012 to 2013 until we hit COVID in 2020. We had a little blip, and then we kept going. That’s our fourth recession. In 2020, we had a recession, but none of us gave a damn about it because we were trying to stay alive. It was called the COVID recession. That was fixed by the government by printing money, and that created inflation. Check out Episode 122 if you want to know everything about inflation.
Since 1948, every period of back-to-back quarters of negative growth has coincided with a recession. We’ve done the history and understood what happens when recessions come to us. We’ve got to figure out if we’re in one or not. On July 28th, 2022, we had a brutal GDP report. It showed that the economy had contracted for the second quarter in a row, which led lots of people to insist that the much-feared recession was already here.
[bctt tweet=”It’s possible that if the economy stumbles more in the next months, the economists of the National Bureau of Economic Research will declare that a recession began already, maybe in early 2022.” via=”no”]
The recession is already here. The argument is that it has been undermined since that GDP report came out. There are so many other factors happening in 2022 that are making a lot of people think that it’s not here or not here yet. The economy is cooling off, for sure, but like housing, it had to cool off. It had to cool off because it was freaking white sun hot in 2021. Even in 2020, post-pandemic, things have been crazy. For now, it does not appear to be suffering the downfall that would qualify as a recession, even though we’ve got the GDP numbers that are going down.
Indicators
Let’s discuss some of the indicators that are making this whole Ross and Rachel, “Are we or aren’t we?” thing difficult to figure out. We’ve got inflation and the GDP numbers, but the economy added more than 500,000 jobs in July 2022 alone. The unemployment rate dropped a 3.5% percent. That’s the lowest level since 1969. Inflation has been going up, but it chilled out in July 2022 for both the consumers and the producers. Do you want more information on inflation? Go back to 122.
Gas prices suck. I get it, but they’ve gone down below $4 for the first time since March 2022. Consumer sentiment is something that a lot of economists look at. We were at an all-time low, but it started to bounce back. In other words, people are becoming a little bit more confident in the overall economy. I know what you’re thinking. You’re like, “Why does that matter?” I could do an entire episode on how the stock market, and in some ways, the housing market, is based on emotions and zero to do with actual facts and figures.
Finally, speaking of that stock market, that thing keeps going up. I do not understand it. We’ve had some dips, but we had the longest weekly winning streak since November 2021, and we’re going on for a couple of years. It’s ridiculous. Let’s learn from some of the pros. Mark Zandi, the Chief Economist at Moody’s Analytics, has grown more confident that the US economic recovery is intact. Mark says, “This is not a recession. It’s not even in the same universe as a recession. It’s patently wrong to say so.”
Zandi said, “The only thing signaling the ongoing recession is those back-to-back back quarters of the negative GDP.” He predicted that the GDP declines would eventually get revised anyway. There are early indicators that the GDP will turn positive this upcoming quarter. Don’t get all gimpy-skimpy about it. None of this means the economy is healthy. It isn’t. Inflation remains way too high. That’s an easy one we all feel every single day in our bank accounts.
Inverted Yield Curve
There are several other super nerd facts, figures, and indicators that are out there. One of my favorites is that we have an inverted yield curve. Those of you hardcore homies know of me talking about the inverted yield curve. I’m pretty sure you don’t even give a darn and completely forgot what it means. It is when economists look at bonds. They’re going to look at 4 months to 30-year US government bonds. The yields should be higher on the longer-term bonds. You’re going to make more money putting your money into something that’s got more time to grow.
When shorter-term bonds have higher yields and bigger payouts than longer-term bonds, that’s an indicator that Wall Street sees that maybe down the line, this investment is not going to be a little tougher to pay out. That means they see the short-term better than the long-term because we’re going to hit a bump in the road coming up.
It’s possible that if the economy stumbles a little bit more in the next coming months, the economists of the National Bureau of Economic Research, who are the official arbiter of recessions, will declare that a recession began already, maybe in early 2022. Now, it’s way too early to say that was the case, so I’m sorry, Ross and Rachel. No one knows if you’re on a break. Each recession is different, but if we are in a recession, it’s likely to be caused by the declines in business spending, investments, and perhaps trade flows. The US consumer is holding up okay, but if the businesses start cutting back on their expenditures, that could be enough to shrink the economic activity.
There’s no way to figure out how big or small the next recession is going to be. We had that huge one back in 2008 that was only beaten by the large Great Depression we had in the 1930s. Whether we liked it or not, we did have the little press release that happened with the COVID recession. Let’s figure out where this might be going. One of the things is we might already be in this recession. We’ve felt a difference with inflation happening, and it has slowed some markets. Do you remember what I said earlier? Typically, they’re not going to report the recession until it’s a year past. Who knows? Maybe we’re recessing now. Do you feel like you’re recessing? I don’t know.
One thing we do know is weird stuff is going to happen. There are a lot of differing opinions on the recession. All we need to know is it’s potentially coming, so maybe we should be careful. A lot of these opinions you’re hearing out there are not necessarily tailored to help you. They’re not being brought to you by ethical people who want you to know the best things for you. They’re being tailored around Wall Street, politics, or businesses.
[bctt tweet=”If we are currently in a recession, it’s likely to be caused by the declines in business spending investments and perhaps trade flows.” via=”no”]
The more I think about it, most of the things you hear about the recession are agenda-driven by somebody else. We’re in a new media world driven by ratings and, unfortunately, a lot of agendas. Most of the opinions you hear are going to be exaggerated headlines to sway your opinion, either at the polls or with your dollars. If we’re talking about opinions, Napoleon Hill said one of my favorite things about opinions. He said, “Opinions are the cheapest commodities on earth. Everyone has a flock of opinions ready to be wished upon anyone who will accept them. If you’re influenced by an opinion when you reach your decisions, you’re not going to succeed in any undertaking.”
Both sides of Wall Street, the government, and the politicians are going to argue whatever side benefits them. Most of the people that are giving me the opinions are typewriter trolls screaming like Chicken Little because they have nothing better to do than offer you some scary life. Even worse, they are these people I’m telling you about who have the agenda and are trying to push their product or ideology on you. I do not tell you all this because I want to increase my bottom line and follow the cult of David. It’s not even close. I started this whole education series because I saw a woeful lack of good information for you.
In this world, I’m seeing you get hit with so many soundbite opinions and social media posts that are supposedly protecting you when they’re either selling you something or pushing that agenda. I see the extreme lack of information or that flat-out, wrong, un-researched, and unsubstantiated information. It pisses me off. It makes me upset that you’re not hearing the truth. I am not in the predicting game. I am in the how to buy a home game. It’s time you get the real truth about how to do this.
You have to prepare to have a steady, possibly unsexy plan that fights these rising rents. Sitting on the sidelines is not the answer. Nobody knows. Nobody can predict. All we can do is look at the indicators and make educated guesses. If you prepare for a downturn of any kind, or if you’re playing the long game with their finances, then the worst outcome you have by preparing for the worst is that you’ve worked a plan and created some savings to give yourself more stability. If the recession ends up being less than we thought it was, that’s cool. You’ve got extra money. What’s wrong with that?
My business guru said that a recession is a terrible thing to waste. He’s a man of high integrity. He’s a big believer in work-life balance. He wants you to focus equally on how much you focus on your personal life as you do on your business life. His philosophy has become that a great businessman is an important thing to become to fuel your personal life. He’s been doing this a long time, and he’s not wrong. He said a recession is coming, and he’s not the only one.
Where he differs in his opinion is that he thinks that this one’s not going to be the end of the world. It’s not a crash but a normal economic pressure release. It’s a pressure release that’s necessary for our economic cycles. Remember, we always go in cycles. The best thing we can do is to anticipate and use this time to prepare now. We probably have another one coming, but many believe that’s going to have little impact on the housing market this time around.
I’ve said it before, and I’ll say it again. This is not 2008. That was a crazy depression brought on by the housing market. That was a 50-year phenomenon. There were unprecedented events unfolding. We had banks folding. We had foreclosures as a crazy epidemic. Unemployment was at an all-time high. We had some bad government policy, some Wall Street greed, and some predatory lending.
Here’s the thing. You can’t just blame the government for what happened the last time. Wall Street and the lenders were a huge part of the crash in 2008, but we also have to blame the consumers for using their homes as ATMs. That created a foreclosure crisis that was so bad that it infected the people who did the right things with their home purchases. It made the people who were doing it right get their homes turned upside down. What do we do? We get a government bailout on Wall Street and the banks so we can try to get back to normal.
Here’s where I’m going to sound like an old man again. This is a needed recession, so let’s not freak out about it. Let’s get ready for it. This is a release in the pressure cooker that’s boiling way too hot. I said in 2019 that we should have a recession coming. Do I think one is still coming? Yes, I do. The only difference is a lot of people way smarter than I am are saying there are indicators saying it’s coming.
I said on the last episode that the last couple of years had been an economic fantasy world or a fairyland with things only going up in value. This will more likely be that pressure cooker with some steam blowing off. It’s the best way to keep an economy with rising ups and downs, not gigantic peaks and valleys. This needed pullback pressure release of a recession is coming. The indicators are there with the GDP numbers, stock market corrections, and inflation.
[bctt tweet=”The way to stop inflation is to keep raising the Fed rate.” via=”no”]
This is going to be more in line with the historical recessions that we usually have, a mild one compared to the global meltdown that we had in 2008 and 2009. Here’s the thing. Remember, in that global meltdown in 2008 and 2009, we had fully recovered by 2013, with things on the uptick starting in 2012. We had all come out of it, including home values, which fully recovered by 2013 from that pit of despair.
We’ve got unique circumstances that separate this from the recessions that go all the way back to the 1800s. We got funky analytics. It means that it’s still technically going to be a recession, but it’s going to be a weird one. It will likely be leaning on the milder side of things. We’ve got the usual indicators, but we’ve got all these weird differences in this economy. There’s so much cash in the system, so there are more options for people when things slow down. We’ve got the highest inflation in many years, and that’s going to be here for a while. The way to stop inflation is to keep raising the Fed rate.
Here’s the thing with raising the Fed rate. They only have so far to go because if they keep it up, then that’s probably going to take housing mortgage rates way too high. They don’t want to do that, so they’re going to have to eat a bit of the inflation woes if the Fed rate doesn’t stop inflation. That probably means we’re going to have a recession coming.
Housing Inventory
One of the other things we have that’s going to make this probably a milder recession, but still a recession, is that the housing inventory is still so wickedly low for the past couple of years. Since the global cluster mass meltdown that we had, we’ve underbuilt the number of homes needed to build every single year. We have never caught up to the necessary level. That’s going to create an unusual balance in the supply and demand for the necessary consumer need. That’s 1 of the big 3 where the demand is way higher than the supply. You got your food, shelter, and clothing.
Since supply and demand are out of whack as it has been for several years, there have been all other things that have been attributed to this. There’s a whole bunch of what they call Not In My Backyard zoning laws. That’s where people are not letting new places be built because they don’t want them in their fancy neighborhoods.
The state of California has had so many problems with laws, registrations, and permits that they’ve built fewer homes in the last few months than the entire city of Dallas. Our whole huge state is built less than the city of Dallas. It’s not as easy to build a home these days, and the inventory is way low. If you think, “The economy is going to change,” it will be a slow change. The economy has been thriving for the last few years, and the builders still haven’t started to catch up.
Imagine a chart. It goes up high. It’s crazy. Rents are stupid. Mortgage interest rates have also escalated from that insane low of 2.7% or 2.8% to about 5.5%. The market weathered that storm without a crash. What does that tell us? Does that tell us that a recession is coming? Does that tell us that we have a strong market that’s strong enough to withstand almost a complete two-point increase in mortgage rates, which is huge?
Another thing about recessions is they’re often defined by unemployment. How is this potentially different? We’ve got a unique job market at this time. There are 11.5 million job openings, and only 6 million people are looking for work. The Great Resignation was a weird time. Forty-seven million people changed jobs in the last few years.
Eighty percent of the Millennials surveyed said that the change they had was not what they thought it was going to be. Maybe as things tighten up, they’re going to jump back to their stable jobs. They won’t stress about their work-life balance anymore because the other work-life balance didn’t have enough work and paycheck. I wish better for everybody, but not everyone can become an entrepreneur and make it work for them.
Finally, the factor we talk about with a recession to figure out whether one’s coming or not is housing. This is not going to be the global housing meltdown we saw in 2008. Don’t let recovery bias cloud your judgment. Housing is not going on sale. For more details on that, make sure you go back and read Episode 117. Everything you need to know is in that one. There are more in episodes 112, 108, and 106.
In fact, no matter where you are in your home planning journey, you can find all the info on HowToBuyAHome.com. We had info from early planning, or maybe you’re working on your credit or savings, hacks and tips to use the internet to shop for a home, using your 401(k) to help with the down payment, or even helping you find the right lender or realtor. That’s what we do here on HowToBuyAHome.com. Jump on there and hit Ask David with your specific question. Follow @HowToBuyAHome on TikTok and also @DavidSidoni on Instagram.
Keep researching. Read the past. Understand the history. Make sure you can filter through the fear-based bias of all the economic news you see coming your way. I’m not going to leave you hanging. I’m not going to drop the bomb on you and tell you there’s a recession coming without giving you a whole bunch of tips and some things you can do to help protect yourself. That’s going to be the next episode. I have rambled so much economic nerd stuff that you probably want to punch me in the face. I get it. I understand.
I have an alternative to that violence. While you’re waiting for the next one to drop, where I give you all the tips on what to do with the coming recession, spread the word about this show for me, please. Will you please rate, review, and share the show with your friends? The more information you, your friends, and your family have, the less fear and anxiety you, your friends, and your family are going to have in your life. We could all use a little less anxiety. Don’t worry. The recession is coming, but if you know about it, you can plan for it. It’s not inconceivable. You can do this.
Important Links
- Episode 29 – How Do I Time My Home Purchase If a Recession is Coming?
- Episode 117 – 2022 Mid-Year Housing Shift and Forecast for First-Time Home Buyers
- Episode 112 – Housing Update… Compared to Your Kardashians Knowledge
- Episode 108 – Economy Meltdown 2022 and Being “House Poor”
- Episode 106 – Dave Ramsey is Sometimes Right, but OH SO WRONG for First-Time Home Buyers
- Ask David
- @HowToBuyAHome – TikTok
- @DavidSidoni – Instagram
This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!
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