We are officially in a recession, but what does that mean for your Real Estate Business?
A recession is two consecutive quarters of negative GDP growth. This morning, the economic data showed that our GDP growth was negative for the first two quarters of 2022. But what does that mean to you?
Real estate is a local business. Not just local by state, but by the community and specific areas or blocks of that community. The overall economy, of course, affects real estate, but depending on your community, you may experience different movements than the rest of the Country.
I always look at the following indicators to see what direction we are headed in.
- Interest Rates: The majority of people borrow money to purchase real estate. Therefore, there is a direct correlation between rates and real estate prices. The higher rates go, the lower real estate prices go. Even though rates are up from last year, they are still historically low. You are starting to see a slowdown in the market, but not a crash or cratering of home prices.
- Unemployment: If people aren’t working, they can’t afford to make their mortgage or rent payments. Unemployment is at historic lows, and real estate values should remain strong as long as that continues. If we see unemployment rates rise to 4.5-5.0%, be prepared for a significant downturn. Recently Ford Motor laid off 5,000 employees. Pay attention to see what that does to our local economy and if there are more lay-offs to come.
- Supply and Demand: Supply has been very tight over the last 24 months, but it’s starting to loosen up in many markets. As this supply increases, prices will continue to flatten or pull back. Remember, each market is different. What happens in Michigan may be different in Florida. Get to know your local market.
- Lending Confidence: To borrow money, you need someone willing to lend it to you. See what loan programs are available in the market and if lenders are pulling back on the products they offer or their terms. They might go from 20% down to 25% down. These negative changes are a great tip that the market is changing, and lending will become more challenging going forward.
As always, use common sense, ask intelligent and experienced people around you, and don’t be afraid. The market moves up and down, and we must learn to make money in every cycle.
If you need an asset-based loan to fund your real estate investments, get pre-approved here or give me a call at 248-385-3750