Is A Recession Coming? We are headed into another week of unprecedented activity on several of our listings, so it is hard to even fathom this topic. 

However, the answer is 100% yes. But no one can predict when it will come or its severity. Anyone who says they can is simply guessing. Some are more “educated guesses” than others. It could be months or years. But what is a recession and what might it imply to us in real estate? 

A recession is commonly defined as a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending like what we experienced in the second quarter of 2020 when lockdowns curtailed spending rather dramatically. GDP fell by over 31%! But that was a pandemic-fueled recession and was followed by a dramatic increase in GDP - 33.8% in the third quarter. Traditionally, recessions happen after extended periods of growth cycles. The US economy contracted sharply after a huge recession that was fueled mostly by a housing crisis in 2008 and 2009. Then the economy gradually improved as cheaper money/easy access to capital fueled the markets into a recovery. As people became re-employed, the economy rebounded, and growth returned to a 'normal' rate of roughly 2% annually which stayed relatively constant for the next decade. Today we are growing at a pace of over 6%. That's huge when you consider the US is an almost $23 TRILLION economy! This is over 38% larger than China's economy where the population is quadruple in size compared to the US.

When a recession strikes and companies see people spending less, typically the first thing they do is cut costs. Staffing/workers are a big expense and are often included in the initial rounds of cuts. Those people left unemployed spend less and often need more government assistance. Rising unemployment, stock market corrections, and negative GDP growth all fuel negative sentiment which drives many in the markets to spend less (even if they can afford to spend more). National recessions sometimes exclude certain areas that are experiencing hyper-growth. Yes, even recessions can be local! 

So, are we heading into a housing recession now after a massive surge? I don't have a crystal ball, but here is what I do know:  

• After a massive consumer spending surge, it's likely things will slow down and taper off to a more normal pace. Abnormal excesses never last forever.
• The banking system has been much stricter about lending standards over the past decade.
• The wealthy, those that can afford to buy homes, are wealthier than ever before. They are the first to have savings and retain jobs.
• The volume of inheritance and divestment of estates should accelerate as the population ages.
• Housing recessions do not always mirror economic recessions. Often pricing and activity can remain strong in a mild recession.
• If we experience another wave of the pandemic, this could negatively impact economic growth. However, vaccines have reduced the severity and deadliness of COVID - keeping people out of hospitals, employed and spending!
• Homeowners appear to have far higher equity levels these days.
• The homeowners who would have lost their homes during the recession without government (taxpayer-paid-for) assistance, have not flooded markets with foreclosures. Most markets have inventory shortages.
• Even if interest rates double, they will be relatively low compared to prior markets where rates were 10% and higher.
• While our economy is booming right now, COVID-related issues and fears are still holding back millions from re-entering the economy. So, we are still in recovery mode, although we have mostly recovered.
• Enormous government spending and borrowing should fuel the economy for the next few months to years. Politicians always promise massive growth with spending or tax cuts (usually the promises are a lot rosier than reality)!
• Inflation and rising energy costs could dampen the consumer's ability to spend. A mild winter would help. 
• We have not experienced over-building as was the case in some past recessions. In fact, we are under-building. Affordability remains a big issue. 

Will market activity slow at some point? Yes, in parts it already has. Will prices drop? Possibly in some areas, but it may continue to rise in others. In Lamorinda, our prices are still rising. 

Will people continue to buy and sell homes? Of course, they will. Life, death, divorce, kids going to college, people making/losing fortunes, and job transitions never really stop!  

Bottom line, we live in an area with excellent schools and a high quality of life. If you are planning to live in your home for 5 to 7 years, you should be able to weather any storms that head our way. As you know, the Dana Green Team is entrenched in all aspects of this marketplace. If we start to see dark clouds vs. our current sunny climate, we will let you know!

Dana Green