All the big shots are coming out of their walk-in closets and predicting a recession – some say as early as this summer. David Rosenberg, a renowned economist at Rosenberg Research says It’s inevitable. Famed billionaire corporate raider Carl Icahn says there “very well could be a recession or even worse.’ Wall Street titans Jeff Gundlach and Bill Gross say ‘a recession could be in the cards.’ And former Treasury Secretary Lawrence Summers says we will have a recession by summer.
The technical definition of a recession is two consecutive quarters of decline in the GDP, but it’s a multitude of indicators that determine if we’re in a recession. Essentially, it is the loss of business and consumer confidence. Even though the economy is healthy now, many say this will end – and soon.
The inflation rate is now at a whopping 8.4%. A year ago it was 2.26%. The average price for a gallon of gas is $4.00 a gallon. A year ago it was $2.50. The price of food is skyrocketing and the war in Ukraine is not just hurting Ukrainians – it’s hurting everyone.
Lawrence Summers said that the Federal Reserve had been late to spot the dangers of inflation and that delayed action to cool prices could potentially tip the economy into a slump.
David Rosenberg said that “the Fed will beat inflation so hard that the U.S. economy will slide into recession as early as this summer.”
How Will It Affect Real Estate?
For investors, it will be a good hedge. For home buyers and renters, it will be tougher than a two-dollar steak.
There will be fewer buyers, so houses will stay on the market longer and prices will be lower. But it will be harder to finance one of those less expensive homes because banks won’t approve mortgages due to economic uncertainty. For investors with deep pockets, it will be a big win.
It will be a big loss for renters. Higher mortgage rates mean buyers won’t be able to afford a new home, so many will continue to rent. And more demand means even higher rents. But real estate will do better than other industries once we hit the Big R. Car dealers are already feeling the pinch.
Summers concludes: “That’s why my fear is that we are already reaching a point where it will be challenging to reduce inflation without giving rise to recession.”
The clock is ticking….hide your money and buckle up, It’s going to be a rocky ride.
