We’ve talked about the impending recession before, and I truly believe we are on the cusp of another economic downturn. Historically, there has been a recession every 8-12 years and we are coming up on the 11 year mark since the recession of 2008.
While I hope this time around it is not as significant as 2008, there are some economic markers that we can be aware of, so as to aide in our financial planning.
Indicators of an Impending Recession
Firstly, a recession is defined as two economic quarters with negative growth. Here are a few economic markers that indicate an upcoming recession:
1. Inversion of the yield curve
There has been much to do in the news media about the inversion of the yield curve where long-term rates for bonds were less than short term rates. The media made a big deal about it, and it is definitely something to be wary of.
2. Downturn in the trucking industry
Trucking is an $800B/year industry, where 71% or more of our goods are delivered by truck. And yet, several thousand truckers have been laid off this year. This downturn indicates that people are ordering less inventory and seeing less of a need for truck delivery, hence a reduced need for truckers. When I see this, I am concerned.
3. Bloated inventory
Because of the tariff wars with China, people are ordering less things and manufacturers are experienced bloated inventory levels. Couple that with fewer things being delivered by trucks, and we have an issue.
4. Brexit from the EU
Two years ago, the U.K. voted to exit the European Union. Finally, in October 2019 the exit will be implemented. With this, we are left with a lot of uncertainty in the European economy.
Italy is experiencing a change in government and having difficulty putting their government together. While a default on their economy (like Greece) is not likely, it could happen. Given the larger scale of the Italian economy, it could be one more factor in a larger domino effect.
How Can Real Estate Investors Protect against the Impending Recession?
Be sure you are sitting on some capital. If a recession comes, you may be looking at more vacancies in your property, regardless of the market. Plan on having a higher cash reserve to protect yourself.
Also take a look at your loan terms. If you have a short term on your note and it’s going to be called soon, look at refinancing options now.
Don’t forget: in 2008 people who were making their monthly payments on time still got their loan called because the appraised value of the property decreased and failed to meet the terms of the loan.
Now is an opportune time to look at locking in a longer term financing before the impending recession.
And remember, in 2008 there were a lot of people who created a lot of wealth as a result of the economic downturn. They were in a position to purchase properties at a much lower price, had formed alliances and networks, built capital and were ready to “swoop” in. When other people were selling, they were buying – at a discount.
No one likes to profit off the misfortune of others, but a recession can be an opportunity for real estate investors. Now is the time to form alliance and make a plan for raising capital. So contact us here to find more about this alliance because: