I should start by saying that I cannot predict the future. However, I do feel it’s important to keep an eye on the experts’ forecasts, both for myself and for the benefit of my clients. Although pundits argue over the timing of the next downturn, one thing is certain: our economy will go through a recession at some point, probably sooner than later given the length of the expansion. Just saying the word “recession” brings back ugly memories of 2008, but assuming the majority of expert opinions are correct, the next recession should be a more garden-variety downturn rather than a catastrophic rerun of the Great Recession. At the risk of creating a self-fulfilling prophecy, hypotheticals seem to predict that the next recession will hit near the second half of next year. With that in mind let’s discuss some of the fundamental elements of our local residential real estate market today.
• Most Homeowners have equity: in 2010 it was widely reported that over 55% of Washoe County homeowners were faced with negative equity; some said that number went over 60% by 2012. According to a report from last February, less than 5% of local homeowners find themselves in that same negative equity position today. Today’s borrowers have discovered that unlike pre-2008, there are significant hoops to jump through when procuring a home loan. As a result, we simply have a higher percentage of well qualified homeowners with positive equity than we did prior to the last downturn.
• They’re still coming: I suspect that retiring Californians will continue to find Northern Nevada to be a great place to land. Also consider the economic and employment boom we find ourselves in today. There is no doubt that a recession would diminish the flow of both pipelines, but once again our fundamentals are good. While the last real estate run-up was mainly speculative, this time around it’s been primarily based upon good jobs and great geography.
• Housing isn’t the problem: According to a recent report from Zillow, most economists and investment strategists surveyed point to trade policy as the most likely cause of the next recession, followed by a stock market correction and geopolitical crisis. In fact, most of these experts agree that with our historically high demand for housing coupled with low interest rates, it’s more likely that real estate will pull us out of the next recession rather than pushing us into one.
I do not anticipate a big drop in housing values although most of us should consider stashing a bit more into our rainy-day fund. The critical factor in preserving real estate values will be that we all continue to make our mortgage payments. That is what will keep those investments secure.