A recession is coming and maybe as early as summer

[Michael P. Lindekugel]

Previously, the Federal Reserve indicated it would raise the federal funds rate four times this year. On March 16th the Federal Open Market Committee said it expects to raise the federal funds rate six times this year targeting increases between .25 and .5. The Fed announced it will raise interest rates .25 the first round. Federal Reserve Chairman Jerome Powell is study of past Federal Reserve Chairman Paul Volker. Inducing a recession is the only way to slow hyperinflation. Volker induced two recessions in 1981 and 1982 to stop 1970s hyperinflation. I think the Fed could induce a recession by summer.

Housing on a national level is overvalued relative to inflation by about 35%, relative to wages about 27%, relative to rents about 25%. The home price to income ratio is very close to 2007 just before the Great Recession. But, there are few high leverage purchases compared to the 2000s. All cash homeowner purchases account for 25% of sales. Most purchases include a significant down payment compared to many low down payment purchase in the 2000s. We are due for a price correction. Price corrections are 10% to 12%.

The 10 year treasury and 30-year fixed mortgage loan market reacted to the March 16th FOMC spiking. By raising or lowering short-term interest rates, monetary policy affects the housing market, and in turn the overall economy, directly or indirectly through the effects of interest rates on 1) the user cost of capital, 2) expectations of future house-price movements, 3) housing supply, 4) standard wealth effects from house prices, 5) balance sheet, credit-channel effects on consumer spending, and 6) balance sheet, credit-channel effects on housing demand.

If a bear market emerges, then we should expect home devaluation nationally of 20% to 30% or more in markets overvalued relative to wages and rents.

[Bill B.]

You’re allowed to have an opinion as long as you’d standing behind it and telling everyone that comes to your brokerage to buy a house that you strongly recommend against buying because you believe houses are about to tumble 20% or more within 2-3 months. (This summer)

I on the other hand will take the bet that houses will be more expensive this summer. BUT, I’ve done ZERO research, I’d sure hate to think I have a 90% chance of being right against the “experts” when all I’m using is high school economic definitions of inflation and supply and demand. 

Maybe you can get those experts to refund you all your lost commissions from turning away buyers if I’m right, but probably not. I know the experts that screamed about the 20-30% decline in 2020 and again in 2021 didn’t refund any money for the lives they ruined talking people in to selling or out of buying.  I guess that’s what you get when there’s zero penalty for GUESSING. 

Does anyone out there really want to take any bets on if housing will be more or less expensive this summer? How about in a year?