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The types and causes of recession vary and none are exactly the same. Some can be severe - akin to a depression - while others are relatively mild. They can be caused by different factors so while one industry could thrive during one it could struggle during another. We forget that we experienced a massive recession in 2020: a deadly virus and enforced lockdowns are unusual. US GDP growth dropped by 4.6% in the first quarter of 2020 and 29.9% in the second quarter! The third quarter fueled a rapid turnaround - 35.3% growth! - mostly fueled by the unprecedented $2.2 trillion stimulus of March 2020. By the end of 2020 over $3 trillion in stimulus was passed. The companies that performed best at this time did so because they stood to benefit in some way from the virus and lockdown and not necessarily because they were better equipped to withstand a recession.
Right now we are experiencing the threat of recession because of the combination of COVID-19 aftermath (surge in spending, inflation, supply-chain re-balancing), the war in Ukraine and its resulting energy shock, and many years of super-low interest rates. Now with borrowing costs dramatically higher, raised at historically fast speed, we may see economic growth slow down for different reasons. Most times the industries that fare better during recessions are those that supply essentials we cannot live without, including utilities, health care, consumer staples, and technology (lots of tech is the utility of our time). And yes, we all need a place to live too. That's essential too.
Theoretically, while the cost of financing a home typically increases when interest rates are on the rise, home prices usually decline too as demand slows. With decreased demand and fewer buyers, fewer people compete for the same inventory of homes. But how will this apply to this current under-supplied environment? We have acute shortages of homes in certain classifications, especially the more affordable entry-level options. While the 'regular' audience grows dramatically as the Millennial buyer pool swells - many fueled by the transfer of generational wealth - this group is being joined by entities and corporations seeing elevated returns as rents rise. Then again, there is tons of rental property construction now: when those hit the market could rents come.....down?
So will this slowdown/recession be different? Chances are, yes. And we will only know once it has passed. The guessing and predicting right now is rather exhausting and futile. The fear of recession though may be our best friend.... it's when markets are arrogant that bigger risks are taken and there is less caution.
Have a WONDERFUL Day
Regards,
Leonard Steinberg
COMPASS
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