Recession Resilience

Speaker 1: [0:09] Hello, hello, and welcome to the Awesome in Seattle podcast. This is Christian Nossum with the Awesome Nossum Group at Wilson Realty, and we have the wonderful

Speaker 2: [0:17] Charlotte Reynolds.

Speaker 1: [0:18] Yes, and

Speaker 3: [0:19] The fabulous Jason Saldarriaga.

Speaker 1: [0:24] And we have our newest member here. We have Sarah Kate Davis. Thank you- Hello … for coming on. Woo! Yes. So Sarah Kate, uh, just recently joined the Awesome Nossum Group after almost three years, uh, at a different company, and she is, uh, she's blowing us away. Killing it. Yeah, blowing us away with her knowledge.

Speaker 2: [0:44] Oh, thanks, guys.

Speaker 1: [0:44] So- I try … we are super excited to have her on her first podcast, so, uh, yeah, we're excited. Thank you for joining us. And another girl

Speaker 2: [0:51] on the team.

Speaker 1: [0:53] Yay. Yay. Girl power. Now we have three.

Speaker 2: [0:56] Oh, Jason, I'm sorry. I didn't mean to take away from your- … feminism there. I think he's happy. I think he's happy to

Speaker 1: [1:02] be here. Sorry. All right. So today, this is a very, although we started off somewhat joking, this is a very, I don't, I don't know about serious, but it's a pretty important topic that everyone really needs to understand, and really, it's on the forefront of everyone's minds right now because there's a lot of talk of recession. And this podcast is really going to help you understand how and what a recession could do and how it could impact you, uh, in terms of real estate.

Speaker 3: [1:30] Yeah, there's all these articles going around right now- Mm-hmm … on the interwebs. I'm seeing a lot of agents post them, and, uh, the premise is pretty surprising. At least when I first saw it, I was like, "This is such, like, a used car salesman pitch." Exactly. Basically saying, like, recessions don't lead historically to home price values going down.

Speaker 1: [1:50] Mm-hmm.

Speaker 3: [1:50] And when I, uh, again, when I first saw that, I was like, "No, no, no. Come on. They're hi- They, they have to be lying." But, uh, we dug a little deeper. We looked at the data, and we're gonna be discussing that today, so-

Speaker 1: [2:00] Yeah … Speaker 3: yeah, I think it'll be helpful. And it's, I mean, it's, it's understandable. I mean, everyone wants to know, how do you protect yourself? Um, I mean, we just had the Great Recession from, you know, 10 years ago, and that's fresh in our minds, and there's so much news out there right now saying there is going to be another recession, and it will happen, and it is gonna happen. Um, so we just need to understand how we can make some smart decisions and, uh, and minimize any exposure that, you know, you might put yourself into. So, um, let's dig into this. So Charlotte, first off, let's start pretty basic. Let's just explain what a recession is.

Speaker 2: [2:38] Yeah. So it can be a little bit of a difficult question to answer since people tend to define it in slightly different ways. Um, but the most widely accepted definition is that it's a period when the GDP growth rate is negative for two consecutive quarters or six months. Um, and this can happen for many different reasons, some of which are way outside the scope of this podcast. Yeah. But it's often to do, um, with the financial crisis, like the Great Depression or the bursting of an economic bubble like what we saw in 2001 with the dotcom crash.

Speaker 1: [3:07] Yep. So that's a good, I guess, definition so we're all on the same page of what we're talking about. So since the last recession is so fresh in our minds, Sarah Kate, do you wanna kinda recap what actually happened during that last recession?

Speaker 4: [3:21] Yeah, definitely. What we saw in 2008 was super unique because it was directly caused by the collapse of the housing market.

Speaker 1: [3:30] Mm-hmm.

Speaker 4: [3:31] And, you know, I think it's fair to say that most other recessions were not caused by the housing market. So people are still pretty raw from 2008, and they're scared, and they think that all recessions greatly impact this lovely housing market.

Speaker 1: [3:46] Mm-hmm.

Speaker 4: [3:46] And it's just not the case.

Speaker 1: [3:48] Yep. That's very, very true. Um, yeah, I mean, a lot of it was, a lot of what happened then was because of the mortgage industry just really not being regulated.

Speaker 4: [4:00] It sure wasn't.

Speaker 1: [4:01] Yeah.

Speaker 4: [4:02] They, they like to give out money like candy. Mm-hmm. So they were, they were a little shady, those mortgage industry folks. And- And people were, you know, given more money than they were qualified for. They were given subprime loans, and that's a type of loan that's granted to people that have poor credit scores who just couldn't qualify for conventional loans. And so, you know, they just didn't have the means to end up being able to pay those back. So I think that was- Obviously a huge problem

Speaker 1: [4:31] A prime example is myself, and I'll give a little personal testimony of what happened back in the day. So in January 2005, I started out, January 5th, 2005, I started as a real estate agent, which as you know, is commission only. I made no salary. Um, I had not very much money in the bank. Um, and six months later, I bought a $535,000 house. I had $2,000 in my bank account, and I put $1,500 of that down. That was my total down payment on a half-million-dollar house. And it was because they were literally giving mortgages away to anyone for any price, for any reason. Thankfully, what I bought was a nine-bedroom duplex. I lived in the upstairs two-bedroom apartment. I rented out the seven bedrooms down below in their own separate apartment, and I made 250 bucks a month living in my own house. But that's not what most people were doing when they were getting these loans that they probably shouldn't have been able to qualify for. Um, so that's just a, a, a good example of what was happening back then. Anyone could get a loan for any amount, for any reason, no matter if you had a job history, a salary, you had any good credit, didn't matter

Speaker 4: [5:51] Yeah, I mean, the banks came calling. They wanted their dollars, and- Yep … people couldn't afford to pay them back, so-

Speaker 1: [5:57] Yeah … that's when- When the bubble burst, that's what happened. Yep. That's- The

Speaker 2: [6:00] banks were like, "Pay us." Not everyone was as smart as Christian in regards to how they used the-

Speaker 1: [6:03] Yeah … Speaker 2: the mortgage. No. Well, and so many people, too, were using their home like an ATM machine. They would refinance and then use that money that they took out of their home to buy RVs or vacation properties or boats or toys or whatever, and it, it was just funny money at that point.

Speaker 4: [6:22] Funny money, I like that.

Speaker 1: [6:23] Mm-hmm.

Speaker 4: [6:24] Yeah, people just started defaulting, and dun, dun, dun, the recession.

Speaker 1: [6:28] Yep.

Speaker 3: [6:29] Fortunately, afterwards, though, they definitely implemented changes to, uh, curb that.

Speaker 4: [6:34] Yeah, the Frank Dodd, the Dodd Frank.

Speaker 3: [6:36] Yeah.

Speaker 4: [6:36] Maybe I should say it right. That'd be helpful for people. Yeah. The Dodd-Frank Act. There you go.

Speaker 3: [6:42] So

Speaker 4: [6:43] they just, what happened with that is they put stricter str- strict- I can't talk today.

Speaker 1: [6:48] That's all

Speaker 4: [6:48] right. Stricter standards-

Speaker 1: [6:50] There you go. … Speaker 4: on the types of loans that banks could offer people, and this same act also prevented lenders and appraisers from giving and receiving kickbacks. Mm-hmm, which that was prevalent. It was like, you know, if I was a lender, I would call my favorite appraiser and say, "Hey, this house needs to appraise at this price. Oh, by the way, here's your four tickets to the Yankee game on Sunday. Like, make sure that happens." Yeah. And that stuff was happening left and right. So now the Dodd-Frank Act has, like, separated them. They're, lenders and appraisers cannot talk to each other. There's a third party that does all that stuff. So that's the last recession. Um, but taking a look back at over the recent past, Jason, how have recessions really impacted home prices?

Speaker 3: [7:38] Yeah. Um, in a nutshell, they really haven't, which I find surprising.

Speaker 1: [7:43] I know. But after looking at the- We all did. Yeah. Yeah. 'Cause the, I mean, the last recession's so fresh still- Yeah … in everyone's minds that we kind of always assume that a recession impacts housing, but it's just not true.

Speaker 3: [7:53] Correct. So one of the articles that's being posted a lot on the interwebs right now, um, points to research that is done, that was done by some real estate-related companies. So you know, that right there is, like, a-

Speaker 1: [8:06] Red flag … Speaker 3: red flag. Or at least an, a yellow flag- Correct … one. Wait, wait a second.

Speaker 3: [8:10] Yeah. Now, they show that over the past five recessions since 1980, home prices only fell during two of 'em. Okay? One of them was obviously the Great Recession in 2008. The other one was during the recession in 1990, um, after the Cold War, and during that one in 1990, prices only decreased by less than 1%, 1%, and they rebounded pretty quickly, so that one was pretty- Mm-hmm minimal in and of itself. Um- That being said, the, the Great Recession in 2008, we saw home prices decrease by 14%. So that was pretty dramatic. Yeah. And again, that's what's fresh in our minds. Yep. But, um, but yeah, I was very surprised by that.

Speaker 1: [8:51] Yeah.

Speaker 4: [8:51] Another article, sponsored by Zillow. Uh, looked over the past 23 years. So excluding the Great Recession, this is what Zillow has to say. There have been over 1,000 instances of states being in a recession during a given month. Annual home value appreciation was positive 81% of the time during these months. So an identical rate to months in which states were in economic expansion. So in other words, home prices weren't negatively affected during these recessions.

Speaker 3: [9:28] So that article, the one by Zillow, they did a little different of an analysis compared to the first article I mentioned. They looked at local and statewide recessions, and there's many of those. Um, and so there's over 1,000 instances of those types of recessions, and basically what they're saying is, um, annual home appreciation was positive 81% of the time during those moments of recession. Um, now, you know, keep in mind the timeframe here is the past 23 years, but, uh, but yeah, again, another surprising article, or, or conclusion, I, I should say. Mm-hmm. Mm-hmm.

Speaker 2: [10:05] Yeah, and it's actually pretty understandable because, you know, housing is a basic need, so no matter really what's happening with the economy, um, everyone needs somewhere to live. So it might not necessarily be doing well, but it's just kind of trucking along.

Speaker 3: [10:19] It is important, though, to remember that, um, during a recession, you might find it harder to sell your house. Mm-hmm. So, so two sides. Like yeah, the price might be the same, but it is harder to sell the house. So-

Speaker 1: [10:32] Yep … Speaker 3: if you buy something that's crappy in one way, sh- shape, form, or another- Mm-hmm

Speaker 3: [10:38] um, it might be a little hard to sell in a good market. In a recession it's just gonna be exacerbated- Yeah … and it might sit for a little bit. So keep that in mind. There are two sides to that coin.

Speaker 1: [10:47] Yeah, and often we, we hear clients that want a home that's recession-proof, quote, unquote, and, I mean, that's, there's no such thing, first off, but-

Speaker 3: [10:57] We hear that so often. Yeah. Yeah.

Speaker 1: [10:59] But the way that you can make it the most recession-proof, I guess, is, um, is really focusing on resale. How easy and, and how, really how easy is it gonna be to resell this house? And as real estate agents, this is, or at least here at the Awesome Nossum group, that is what we focus on a lot. We are always walking through not only does this m- house make sense for you today, when you go to sell is this gonna make a lot of sense for other people? Some of the things that we look at, some of the things that make a home hard to sell, uh, and let's just all talk about this, but, but what are some of the things? I mean, I'll start it off. I mean, awkward floor plans. You don't wanna have to walk through a bedroom to a- access another bedroom. That's the worst. I mean, we've, we've seen that stuff- Ugh … where it's like- Yeah … it's a three-bedroom house, but you have to get to the third bedroom through the second.

Speaker 2: [11:47] I know. I can't believe how common that actually is. Yeah,

Speaker 1: [11:50] it's a little funky.

Speaker 2: [11:51] It's, yeah.

Speaker 1: [11:51] Those houses are really hard

Speaker 3: [11:52] to sell.

Speaker 2: [11:53] There you

Speaker 3: [11:53] go. Just throwing that out there.

Speaker 2: [11:54] Mm-hmm.

Speaker 3: [11:55] Sometimes they're nice in that they're, like, really historic- But usually, yes. But again, during a recession, like, good luck finding- Yeah … somebody to, to buy that. You

Speaker 4: [12:04] gotta- That's a hard sell, for sure.

Speaker 1: [12:05] Mm-hmm. Yeah.

Speaker 3: [12:06] Yeah.

Speaker 1: [12:06] What are some other, other, other things that make homes hard to sell?

Speaker 3: [12:09] The gradation of the, the property itself, especially in Seattle, there's so many hills. There are pros and cons to this. Mm-hmm. A lot of times when you're on a slope, you might have a great view. That might help with the property value. Mm-hmm. But depending on how it's sited and what the benefits are, if it's a really sloped property, you know, you probably can't use that land very much. You're not gonna be able to play ball in the yard with the kids and that sort of thing. So, um, that can, that can be difficult.

Speaker 1: [12:37] Mm-hmm.

Speaker 4: [12:38] I would say busy streets.

Speaker 3: [12:40] Yeah. Ooh, that's a good

Speaker 4: [12:41] one. Busy streets can be- Harder … you know, they can, yeah, they can be harder for people. Mm-hmm. Some people, I think that may be moving from larger cities where they're used to living in really great metropolitan areas, you know, maybe they don't mind so much, but-

Speaker 1: [12:57] Yeah

Speaker 4: [12:57] other people- I mean,

Speaker 1: [12:58] if you're moving from the Bronx-

Speaker 4: [13:00] Yeah. … Speaker: or Brooklyn or, I don't know Sure. Yeah. But, you know, for, I would say for most people, the, the busy street is huge.

Speaker 3: [13:06] Yeah. Yeah, and the key there in my eyes when I'm looking at properties in this regard-

Speaker 1: [13:10] Mm-hmm … Speaker 3: a busy street can be a- an advantage depending on how it's set up- Yep because it's maybe more accessible, but it's also the type of property that's on a busy street. Yep. So, if you have, like, a huge, amazing front yard and it's in, on a busy street- Mm-hmm … Speaker 3: that's not necessarily the greatest compared to if you had, like, a townhouse, um, that you don't have a yard anyways, so you're taking advantage of the location. It's on a busy street. Yep. Ooh, bus lines. What if you commute? You know, the bus lines. So, and the, you know- Yeah … so there's demographics also in, in that aspect. So, I, I think it's, it's nuanced there. I, I love- Yeah … I love that aspect.

Speaker 3: [13:42] I mean,

Speaker 1: [13:43] definitely with, like, townhomes or condos, being on a busy street, that's not gonna impact as much as a single family house. Correct.

Speaker 4: [13:49] For sure.

Speaker 1: [13:51] Yeah. I mean, one, one area that I always think of when I'm thinking being on a busy street is really, like, 50th in Wallingford.

Speaker 3: [13:59] Oh, yeah, it's busy.

Speaker 1: [13:59] Going east and west between Green Lake and I-5, there's all these houses on there, and if you compare the same exact house that's on 50th to one that's on 53rd, the one on 53rd is gonna be way more expensive than the one on 50th, even though it's the same house, essentially. Definitely. Mm-hmm. So, that's just something to keep in mind, and that's also a plus for a buyer, though, because you can get a nice big house in a good neighborhood- But on a busy street, you can get it for less versus- So maybe that's a way to- If they're willing to

Speaker 4: [14:29] sacrifice, for sure.

Speaker 1: [14:30] Yeah … exactly. But you have to know that when you go to sell, you're not gonna get- Mm the most money. Your home's not gonna increase in price as much. It's gonna take longer to sell.

Speaker 3: [14:39] Well, and if there's 5,000, uh, similar properties on the market, that's when it's difficult, right? Exactly. Right. And, and that's what you see more often during recessions. Mm-hmm. A- again, not like we saw in 2008.

Speaker 1: [14:50] What are some other issues that, uh, that, that homes could have that could stop it from being able to sell in a recession?

Speaker 2: [14:58] I think, like, condos in general can be a little bit more risky during a recession.

Speaker 3: [15:03] Okay.

Speaker 2: [15:03] Um, the first thing people stop paying is their homeowners dues. Yeah. So if they're low on cash, that's- That is such

Speaker 3: [15:09] a good point. Yeah … Speaker 2: they're not reported to the credit agencies, so they- That's

Speaker 4: [15:12] a good one.

Speaker 1: [15:13] Mm-hmm.

Speaker 2: [15:13] Yeah. They don't take a hit for not paying those, and that affects the HOA- Yeah … for somebody else who's potentially looking to buy. Mm-hmm.

Speaker 1: [15:18] And there's still some HOAs today, in 2019, that are still recovering from dues not being paid from 2008, '09, '10. Like, they're still trying to recover from that. Um-

Speaker 3: [15:34] Yeah, once that cycle starts, it spirals out of control really quickly. Exactly. Because then they don't maintain the property, then people move out, then they- Mm-hmm … have no HOA dues to pay to… You know, it just- Yep … gets really bad fast. Yeah, um, structural problems would be another one. This is now a little more difficult to assess during a, uh, a visual inspection, but if you have a good inspector, they should be able to pinpoint, you know, big s- structural problems. Yeah. Um, but yeah, it's just, uh, all these aspects, during a hot housing market, they're kind of overlooked.

Speaker 1: [16:09] Mm-hmm.

Speaker 3: [16:09] And when things turn ever so slightly, even though, even what we s- w- what we've seen in Seattle over the last year, so e- even that kind of shift, it's still definitely a seller's market here. But- Yep … even now that it's slightly less of a seller's market, you're seeing stuff sit that are, they're just not as prime as they were before because there's better options and there's more competition.

Speaker 1: [16:30] Mm-hmm.

Speaker 3: [16:30] So yeah.

Speaker 1: [16:32] Yep. So when you're, when you're trying to find a good real estate agent to help you, make sure that they're helping you actually understand what the long-term resale value could be, and is this home going to be an easy one to sell if the market turns, or we have a recession, or something happens?

Speaker 3: [16:49] Exactly. We can di- dig so much deeper into this topic. We can, uh, uh… You can give multiple college courses on this. It's true. You can, you can get multiple college degrees on this. You can make a career just on one recession. I mean, this is… So don't even, like, so don't think that this is your, now you have, like, AP Economics.

Speaker 1: [17:10] Exactly.

Speaker 3: [17:11] Okay, you don't. I'm

Speaker 1: [17:12] sorry. But this was the gist of it- Okay … and that's what today was about. But essentially, I mean, do you wanna recap what, what all this meant, Jason?

Speaker 3: [17:19] Yeah, so- To tie it

Speaker 1: [17:20] all

Speaker 3: [17:20] together … I mean, in, in a nutshell, it's surprising but true if you look at the data. Yeah. Generally speaking, recessions don't lead to a, a decrease in home values. They might plateau. They might stagnate for a little bit, for a few months- Mm-hmm … or a year or so. Um, but they generally don't decrease in home values, especially like what we saw in the last recession, which is- Yeah … really what I think most people still have fresh in their minds.

Speaker 1: [17:44] And this is, this is, honestly, when we saw these articles being posted and agents reposting them and making videos about them, we were like, "Oh, car salesmen, used car salesmen, this is not true. We're gonna dig into this and disprove what everyone's saying."

Speaker 3: [18:01] Yeah, and then I saw, like, okay, this research is from Zillow, or this research- Yeah … is from a real estate related group. That again, I'm like, okay, well that- Yeah, exactly … that's reliable.

Speaker 1: [18:09] Yeah.

Speaker 3: [18:09] But again, you look, uh, but I… You dig a little deeper and it, and it appears true. It's actually true. Now, there's so much nuance to this, so if you're interested, do not hesitate to reach out. Mm-hmm. Um, and reach out to any of us, uh, at Awesome Nossum. Just go to awesomeandawesome.com. Our contact info is right there. Um, but I do wanna say a couple things. First off, um, we are more than just real estate agents. We're not economics majors or e- economists, but we are resources. Mm-hmm. So if you are interested in this topic, you want, um, your concern is buying something that's recession-proof, quote-unquote- Mm-hmm … um, we're here- Not possible, but okay … to discuss that with you, yeah, and connect you with people like, uh, financial planners, financial fiduciaries, that sort of thing. Yep. Um, that it- it being said, I do wanna kind of end in one note. If your goal is to have something, quote-unquote, recession-proof, like Christian said multiple times, that's not possible. What is possible is making, uh, positioning yourself to be less, it to be- minimize the negative impact of a recession. Mm. You never know what a- the next recession will do to whatever asset. Mm-hmm. And so generally the way to do that is by diversification. So home ownership is the nation's greatest source of wealth generation for most Americans. Makes sense. It's a basic need, like we already discussed. Mm-hmm. Everybody needs a house, and it's usually their biggest asset. But if you want to be more recession-proof, then you want the big D, diversification. You want more than just one asset type, so stocks, bonds, um-

Speaker 1: [19:47] And this is coming from real estate agents- Yeah … telling you to, you know, look into diversifying. We're not saying, "Don't buy real estate." We're saying, "Look at all your options, and maybe don't have all your eggs in one basket so that you can better protect yourself."

Speaker 3: [20:01] Correct. And if you do look at the data, generally speaking, the housing market is the least volatile. But to truly be more, uh, recession-proof, I hate that term though, but resi- resessant- recession resilient, there we go.

Speaker 1: [20:14] There

Speaker 3: [20:15] you go. I like that. Um, yeah. Oof, I'm gonna make a shirt.

Speaker 2: [20:17] Yeah.

Speaker 3: [20:18] You know, you want multiple assets because it might, you might need money fast, and it might not be a good time to sell that house because it's not in your best interest. It might not sell in the time that you need it to, so maybe you have stocks then that you can sell. So, uh, home ownership is the main at- uh, asset source for most people- Mm-hmm … but it should be one of multiple. Yep. That's my spiel

Speaker 1: [20:41] I thought that was an awesome show. I hope that everyone got a lot out of that. Uh, Charlotte, Sarah Kate, Jason, you guys were all awesome. Well done.

Speaker 2: [20:52] Thanks. That's why we're the Awesome Nossum group.

Speaker 1: [20:54] Well, duh. Oh.

Speaker 2: [20:56] That was a good plug.

Speaker 1: [20:57] Yeah, exactly. So yeah, again, if anyone has any questions at all, they wanna talk to us further, don't hesitate to reach out to us, awesomenossum.com. You can schedule a time to meet with us. It's totally free. There's never any commitment. We never pressure anyone, and we're really gonna try to help you. That is truly our goal. We want to help people. We want to tell you if buying a house makes sense or not. Um, and that's it. Thanks very much. We'll see you next time. Thanks, friends. Thank y'all.

Speaker 2: [21:24] Thanks.