I blogged yesterday about how much house prices might correct should a downturn come. Today I am going to share some views on when a possible downturn will come.
Hedge Fund Dudes – 2020?
Some prominent fund managers think a recession that will tank both stocks and real estate will come sooner rather than later.
Ray Dalio of Bridgewater Capital, for example, is predicting a recession in 2020. Here is a short article from late April from Money.com discussing this.
Some Dude on Quora – 2024?
There is also an April Quora thread that discussed house prices in particular. One gentleman focuses on 18 year cycles and predicts 2024 as the year of the correction.
Others focus on supply limitations and more stringent financing requirements as reasons why a correction is not imminent.
Kimberly Amadeo from “The Balance” – Not Imminent
My favorite article on this topic is by author Kimberly Amadeo writing for The Balance – a website that I … have never heard of 😊, but Kimberly is an MIT educated author who makes a lot of great points.
I highly recommend reading what she has to say. In particular, she lists “Nine Reasons Why A Housing Crash Isn’t Imminent.”
Here are some of the reasons I found most compelling:
1. Adjusted for inflation, national housing prices are only at 2004 levels. A lot of people are worried b/c prices have exceeded 2006 peaks, but when inflation is accounted for, that is not actually the case.
2. Houses are not giant ATMs this time. People are not pulling out equity like they did prior to 2008 b/c they can’t (high LTV cash-out loans are not available) and b/c they are simply afraid to.
But – the fear of a housing correction is keeping people from getting over-encumbered and makes them less likely to walk away from their homes when rates rise and/or values drop.
3. Lending standards are way tougher. I discussed this yesterday, but “liar loans” that allowed unqualified people to buy homes are long gone, and this makes a foreclosure crisis much less likely.
4. The supply of homes is lower. I mentioned this yesterday too, but builders are not overbuilding like they did prior to 2008.
Based on point #1 above (prices are actually at 2004 levels), and based on Ray Dalio’s track record, I am going to go with 2020 for my prediction.
But, I may have less credibility than “some dude on Quora,” so I strongly suggest reading the above links and drawing your own conclusion.
And finally, when the correction does come, it probably won’t be that bad, as per yesterdays blog.
Jay Voorhees at (925) 855-4491
Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646