Last week we talked about a completely wrecked economy, and I promised to be back this week to discuss the big R word. Today I do have the strategies you’ll need to navigate the real estate market if a recession comes to fruition. Before we jump into that, let’s explore a theory about Trump’s secret plan to handle inflation.
America is fighting a few wars right now.
There is a war between the right and left. There is the war against misinformation. There is a war for free speech. Then there is the war we’ve talked about here often. The war on inflation. It’s been bloody. Despite the Fed jacking interest rates in a brutal fashion, prices refuse to come down. Why? Because Americans refused to stop spending. They blasted through their savings. Then, they maxed their credit cards. Even after HELOCing their homes, they couldn’t be kept out of malls and airports. So producers didn’t have to bring down the costs of their goods.
Then Trump returned to the White House and blew up financial markets.
Did he do it on purpose? His supporters always say yes, but even they have been a bit freaked out over the past two weeks. The sentiment appears to be this will either be a complete disaster or some kind of miracle will materialize as a result, but we have no choice now but to wait and see. When you fuck around, you find out right?
Well let’s just lean all the way in on that fuck around and fight out strategy.
The jobs report has held its fair share of drama over the past year but long story short, it’s given the Fed the confidence they need about the labor market persevering while they try to tackle interest rates. Job growth has continued, month after month. Trump can’t technically go into the private sector and make major companies lay people off. He can do it in the government though. Is that why DOGE came into play? As you know, they have laid off 30,000 federal employees so far. Without jobs, those folks just might stop spending…
It is important to note that this has in fact also had a ripple effect into the private sector. Several universities have implemented hiring freezes and layoffs based on concerns about federal funding cuts. John Hopkins laid off 2,200 workers after losing USAID funding. Federal funds have been withdrawn from colleges who don’t align with certain policies from the administration as well. It’s not just those liberal educators freaking out though. Wall Street is almost as scared as main street right now. Mergers and acquisitions have slowed, the same with IPOs. Banks like Goldman Sachs and BofA have already started cost-saving measures and layoffs. Now before you close this video due to your political affiliation, let me get to my point. DOGE’s first initiative may not have been government efficiency. It might have been shock the American economy enough to get people to STOP SPENDING money.
Other Americans watching this pandemonium might also get a bit more nervous, a bit more conservative in their spending patterns. Here’s how the tariffs could actually be anti-inflationary. The S&P 500 has declined more than 9% over the past ten days due to fears about these tariffs and trade wars. This has a major impact on the wealth effect of Americans. Will we see inflation numbers come down because even if they haven’t lost their own job or their own retirement savings – they’re watching the news and getting nervous.
Entering stage left: A Trumpcession.
Last Sunday, Trump shared on Fox News that a recession wasn’t out of the realm of possibility. By almost all measures of a healthy economy, Trump inherited a strong one. Whether from himself four years’ prior, from Biden or from the Lord above doesn’t matter for today’s post. The question is, how likely are we to face a Recession based on the recent tumble in the stock market or was the economy strong enough to withstand this blip? We have near full employment as I mentioned, GDP continues to outperform economists’ expectations and even the Federal Reserve Bank of St. Louis says the likelihood of a 2025 recession is slim.
On the other hand...
JP Morgan puts the recession odds at 40% blaming “extreme US Policies.” Moody’s chief economist Mark Zandi said this week the risk of an economic downturn was “uncomfortably high and rising.” While this is all likely to impact the Fed’s stance on rates, it’s also influencing investor behavior and the demand for bonds. Which is bringing down mortgage interest rates.
So what should you do?
Specific to real estate, now is the time to prepare for opportunities. Your buying power is about to increase. Will your competition also stiffen up? This is what every realtor on Instagram has been telling you for over a year – when interest rates come down, buyers will flood back to the market, and you will have to pay more for a house.
I have an alternative scenario for you to consider this weekend.
What if the other buyers are too freaked out to jump back in? I haven’t seen this yet. Activity has been really high since mid-January. We are taking on more applications, have more borrowers actively shopping and are doing more loans. Yet I have a feeling that if people froze as we approached the election and chose a wait and see stance – they might just do the same based on recession fears. Yes millionaires are made in recessions, but only amongst those brave enough to take action. The majority freezes.
Which means this spring buying season could be the biggest opportunity zone serious buyers and investors have seen in a long time.