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The Economy During a Recession

The Economy During a Recession

As the months start to roll on, the Fed is in a very difficult situation. Our government is printing money very aggressively, trillions and trillions of dollars. Inflation is running at 8% and higher so the Fed has no choice but to raise interest rates.

Single-family home interest rates are moving up aggressively now as well. In some states this will have a very chilling effect on the real estate market, especially those states that have high taxes and high crime. Tennessee, North and South Carolina, Louisiana, Texas, Arizona, Georgia and Florida are recipients of geographic movement. People are aggressively moving out of west coast states and northeastern states. Illinois, as an example, has lost The Citadel, which is a very large successful hedge fund to Miami. Along with Caterpillar heavy equipment manufacturer out of Peoria and Boeing Airline manufacturing headquarters. These can be fatal blows to an economy trying to build growth, both in the private sector and in real estate investing.

The economy likely is in the first phase of a recession so interest rates could potentially hit double digits. Property values will flatten in some markets. It’s not the interest-rate, it’s the value of the property and your game plan for the property. It’s your intent. Short-term flipping or long-term holding as an example. Always have an idea of what you want to do with the property and you’re more likely to be successful with your transaction.

In short, the fed is going to do everything in its power to slow down the economy because of the extremely high inflation rate. The federal government simply needs to stop printing so much money. An example of this is the student loan forgiveness program, which will be over $1 trillion. This is debt that fans the flames of inflation and causes eggs, chicken, gasoline, bread and other substantial commodities that we need to go up to our current rate of 8.5% inflation.

This brings up a term that you need to be familiar with called “sticky inflation.” This means there are certain inflationary things happening that may never return to their original state. An example of this is rent prices. Once inflation hits and landlords raise monthly rent it rarely ever goes back to where it was. We’re seeing more and more rental properties with very high monthly rents and those will probably stick and stay at that point.

Set yourself up to be financially free so that whatever happens in the economy you and your family are set.

Areas of Review

Big picture takeaway points

Big picture takeaway points

  1. The economy directly impacts the real estate market.
  2. Inflation is a factor in rental prices.

Reflection

Self-reflection questions to think more about the content

  1. Am I aware of what’s going on with the economy and how it’s affecting rental prices?
  2. What strategies will I use to invest in this economy?

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