Well, it’s official. We have had two consecutive quarters of negative growth in the economy. We’ve all felt inflation already and a tightening economy so naming it a recession is just putting a term to something we were already experiencing. So what does this mean for real estate?

First, let’s understand how the economy works. Picture a snake in your mind that has a slight upward trend. Up and down, up and down. That’s the way the world goes. When we hit the top of the curve, we ride those good times for 7-9 years on average. Then, when we start going down it takes around 18 months to go from the top to the bottom of wherever the economy lands. Then, it takes around 2-5 years to go from the bottom back to the top and when we get to the top we are higher than we were the last time. Then 7-9 years and the cycle starts over again. We think the economy stays relatively consistent but that just is not true. So it was not unexpected to have a recession. Inflation makes it worse but a recession was certainly going to come.

So what does that mean for real estate? 1) We will absolutely see fewer sales this year than originally estimated. Certainly far fewer than 2020 and 2021. Then we will likely see a down year for sales in 2023 but less significant than 2022. 2) Interest rates will level off and may have already done so around the 5% range. This will help the market as buyers will recognize this is the new normal and will return to the market. 3) We will continue to have a shortage of sellers but the fewer buyers in the market will help us return to a more balanced market. 4) It will be more likely for sellers to pay buyer closing costs again and to give a listing price discount and approve a home inspection. 5) A home will still be the best way to hedge against inflation.

If you are a seller, it’s still a good time to sell. It will take longer than it has in the past two years to sell and the negotiation between you and the buyer will be more balanced, but with a continued lack of inventory your home value will stay very strong and most sellers have a lot of cash built up in equity in their homes to use to their advantage.

If you are a buyer, recognize that owning is always better than renting. You may now have a 5.5% interest rate but renting is a 100% interest rate. Now that these rates are leveling off you no longer need to wait to enter the market. Keep in mind you should marry the house and date the rate, meaning, pick the house you want and love it forever. Deal with the interest rate for now because when it goes back down you can refinance into that better rate. Finally, this is a great hedge against inflation. Owning a home always builds your long-term wealth.

If you have any questions about how the recession will impact you or your friends reach out to us at www.maroongroupva.com.

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