Will you survive, until 2025?

Will you survive, until 2025?

Will you survive, until 2025?

Will you survive, until 2025?

Will you survive, until 2025?

Will you survive, until 2025?

Will you survive, until 2025?

Will you survive, until 2025?

Will you survive, until 2025?

​​​​​​​Saul Klein
April 29, 2022

To understand where we are today, knowing about the structure and the past is important.

  • The Economy

  • The Federal Reserve Bank

  • Inflation

  • Interest Rates

  • Employment

  • Real Estate
     

The Economy is cyclical:

  • Expansion

  • Peak

  • Contraction,

  • Trough
     

Business Cycle tracking began in the 1850s and there have been approximately 33 business cycles since tracking began.
High inflation is leading to, and will continue to lead to, more interest rate increases, and fewer people qualifying to buy the home of their dreams, or even a starter home.

At First Blush
The immediate result of rate increases is not a slower market, but a rush to buy. Knowledge of rate increases creates an urgency to buy now while rates are still affordable.

Forecast for the rest of 2022 and for 2023:

  • High (Maybe Higher) Inflation, currently at 8.5%

  • Higher Interest Rates - Necessary to help curb inflation

  • Low property availability and "For Sale Inventory" (Supply) - We are still underbuilt for the current housing demand

  • Increased Appreciation - Supply and demand, with newer players such as "Wall Street" being interested in Homes as an investment.

  • Recession in 2023
     

What is The Federal Reserve Bank (AKA The Federal Reserve, AKA The Fed):
Created in 1913.

The same year the current Federal Income Tax System was established, giving the government the ability to pull money out of circulation (the Income Tax), and to pump money into the economy by regulating interest rates (The Fed).

What is the job of the Federal Reserve Bank?
To control money flow and credit...regulating the nation's "Money Supply" and facilitating its efficient use.

How does the Fed effect the amount of cash and credit in the economy? Three ways:

  • Regulation of Reserves Requirements - The greater the reserve requirement (% of deposits), the less money available to be loaned by banks.

  • Regulation of the Discount Rate - Rate The Fed charges member banks to borrow from The Fed.

  • Participation in the Government Bond Market
     

Why is the money supply important?
Money Supply - Think purchasing power. An individual or entity's Purchasing power is derived by its cash and its available credit. Credit produces the same result as cash, it gives its owner "Purchasing Power" which helps drive demand. In a low production environment (low supply), this drives inflation.

Goal of The Fed: To encourage high employment and economic growth while also keeping inflation under control.

Wall Street Banks are now calling for a recession next year:
Deutsche Bank, is calling for a recession late in 2023, given the likelihood of continued increasing inflation. Even an aggressive Federal Reserve policy response will not be enough, according to Deutsche Bank. Some economists contend a recession is likely, though perhaps not until 2024 or beyond.
"It’s rare that we have this much advance warning: We have a substantial inflation problem and historically The Fed has not been able to deal with this kind of inflation problem without a significant downturn in the economy."

Deutsche Bank’s Peter Hooper

If you sell real estate for a living, what should you do?

  • Remember that you are in an Industry undergoing transition, as your role moves from sales to consulting.

  • Keep selling to those who need to buy or sell and keep your eye on the economic balls...The Federal Reserve Bank, Inflation, Interest Rates, Employment, Government Land Use Policies and Funding, and the drivers of your local Real Estate Market.

Saul Klein

Saul Klein is widely recognized as the real estate industry’s first Internet Evangelist. He was selected by the National Association Of REALTORS® as one of the “25 Most Influential People in the Real Estate Industry” in 2003, and has been selected as one of the “100 Most Influential Real Estate People” by Inman News in 2005, 2006, 2007, 2008, 2009, 2010 and 2011, 2012, 2013.

Contact: Saul@RealTown.com

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