recession 2022

Is A Recession Coming And Should You Be Worried?

How Can You As An Investor Respond To A Possible Recession?
Among the many questions that I’ve been getting recently at our seminars and from our clients is about recession. “Is a recession coming?” It’s boom time so the apprehension is that a bust will follow. Historically as well, we’ve seen this happen more than once. It happened during the early 90s when there was a downturn in the economy lasting a few years. And, of course, we all remember how the boom times of 2006-07 were followed by the recession of 2008, which lasted several years. So are we looking at yet another recession now?

There are similarities in both periods.

In the late 80s as well as around 2006-07, we saw some great boom times right before the economy experienced significant recessions. The real estate sector really suffered during the 2008 recession as well. We have come to expect this recurring boom-bust kind of cycle in the economy. We are experiencing something of a boom in the real estate sector right now as well.
If you’re someone looking to invest in real estate, you’ve probably been asked to get on a waiting list because the demand is high and supply is comparatively low. The prices of building supplies are also going through the roof. In spite of higher prices though, people are still flocking in to buy real estate. If lots of people are looking to buy, that means it’s boom time now and recession will follow, right? This is the general understanding of the situation, but it isn’t necessarily the case.

There are also significant differences between both periods.

Things are actually different right now in 2021 than they were in 2008. Though property prices are high and building materials prices – lumber for instance – are also high and rising, there is no real cause for worry. Right now, there has been no precipitating factor such as the subprime crisis that we saw around 2008. At the time, lending was indiscriminate. Practically anyone could get loans and often they would receive 100% of the purchase price or even more as the loan amount. There were other reasons that accelerated the crash at the time, as I explain in this podcast.
However, things are different today. With the moratorium on mortgage payments during the pandemic now coming to an end, people are afraid of foreclosures. However, most lenders are willing to tack on the forbearance amount to the end of the loan for no extra charge. There is no crisis of the sort we’ve seen in the past. We have rebounded from the pandemic lockdown pretty well! Also, the regulatory oversight is better and loans are much more difficult to get. For one, we now have in place the Frank Dodd Rules. 
So I doubt we’re going to repeat a crisis like we had in 2008. Yes, the craziness, the boom, will subside, but I don’t think it will go into a recession. For a more detailed analysis, check out this episode.