Are We Headed Into a Recession?

growth-recession-750x296By far, this is the most asked question these days. I would be remiss if I didn’t address it. As I said in my last article, I have no “crystal ball”, but since that time there have been some developments which are affecting the real estate market.

  1. Interest Rates – This hasn’t gone unnoticed by the marketplace as we have reached the 5% mark for the most part on a conventional loan. The reason for this increase is a more robust overall economy and the FED’s decisions in 2018. They have laid out a pretty ambitious plan for further increases in 2019 and I believe we should take them at their word since they did what they said they were gonna do this past year. Keep in mind that interest rates are historically low still but I know relative to where we were a year ago, this rise hurts for some.
  2. Less Confidence – This is an obvious one since the entire premise here and the frequency with which I am asked this question suggests people are less sure than they have been in the past few years. Interest rates have played a part for sure, but overall sentiment is waning a bit as people become cautious. Comments about a “red hot” market have now lead to questions about whether the market is “cooling”. I have always said the market depends more on the average citizen’s desire to book a vacation, buy a home or a flat screen TV than the Dow Jones Industrial Average. Simply put: If people don’t feel secure, they will conserve their money.
  3. Buyer’s Disengaging from the Market – Whether strictly a math thing where the buyer is now priced out of their dream home or simply exhausted from running around and not able to compete for a home with their fellow buyers, these are having an effect. Fewer buyers mean less competition which ultimately means fewer offers for sellers. Don’t get me wrong, there are some areas which still red hot (like my listing in Glen Mills with 9 offers where I got my clients close to $30,000 over ask with a waived appraisal), but overall the market can only sustain this behavior for so long.

So what does this all mean for the real estate market? I do not like using the word “recession” because it is an economic term which is far too broad and I believe to be really premature. What I would say is the market is indeed “normalizing” a bit in certain parts of the Philadelphia area and the country as a whole. This means it should behave in a way where buyers and sellers can still be very successful in achieving their real estate goals. A normalization will simply mean that buyers might have a few more options and sellers might have to wait a little longer for the buyer to make that offer. It also means that home price growth will slow; this is basic economics. What I can say for sure is that 2019 will tell us a lot about the ultimate direction the economy is headed and whether what is now a normalization will turn into something more serious.

I would be happy to showcase your question in my next installment. Go ahead…Ask me anything! If I use your question, I will send you a gift card of your choice or donate money to a charity on your behalf.

Seth Lejeune – 610.804.2104 – / Berkshire Hathaway – Fox & Roach

Seth is a licensed REALTOR  and small business owner based in Philadelphia, Pennsylvania. 

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