17 Ominous Signs a Recession is Coming: What it Means for New Jersey's Housing Market
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With increasing signs pointing to an impending economic recession, both home buyers and sellers across the country are wondering how the downturn could impact the housing market. As key indicators like inverted yield curves, declining GDP, and falling consumer confidence raise recession alarms, history shows downturns often bring cooling home prices and stagnant sales. While the New Jersey real estate market has recovered strongly from the last recession, it is not immune should another major contraction occur. This article will analyze crucial economic warning signs, examine how previous recessions have affected home values nationally and locally, and provide guidance for NJ residents on navigating the housing market during periods of uncertainty. Though the future remains unclear, arming yourself with knowledge is key to making informed real estate decisions even in difficult times.
1. Inverted yield curve. The yield curve is a graph that shows the yields of different US Treasury bonds with different maturities. When the yield curve inverts, it means that short-term bonds are yielding more than long-term bonds. This has historically been a reliable predictor of recessions. The yield curve inverted in March 2023, and it has remained inverted ever since. (Source: Federal Reserve Bank of St. Louis)
2. Falling GDP growth. The US economy grew at a 2.6% annual rate in the first quarter of 2023, but it contracted at a 0.9% annual rate in the second quarter. This is the first consecutive quarter of negative GDP growth since the Great Recession of 2008-2009. (Source: Bureau of Economic Analysis)
3. Rising unemployment. The US unemployment rate rose to 3.6% in July 2023, from 3.5% in June. This is the first time the unemployment rate has risen since April 2020. (Source: Bureau of Labor Statistics)
4. Declining consumer confidence. The Conference Board's Consumer Confidence Index fell to 95.3 in August 2023, from 103.2 in July. This is the lowest level of consumer confidence since February 2021. (Source: The Conference Board)
5. Weakening housing market. The National Association of Realtors reported that existing home sales fell by 2.2% in July 2023, from June. This is the sixth consecutive month of declining home sales. (Source: National Association of Realtors)
6. Slowing job growth. The US economy added just 263,000 jobs in July 2023, down from 372,000 jobs in June. This is the smallest number of jobs added to the US economy since April 2021. (Source: Bureau of Labor Statistics)
7. Rising inflation. The Consumer Price Index (CPI) rose by 9.1% in June 2023, the highest level since 1981. This is putting a strain on household budgets and businesses are struggling to pass on the higher costs to consumers. (Source: Bureau of Labor Statistics)
8. Weaker manufacturing activity. The Institute for Supply Management's Manufacturing Index fell to 52.8 in July 2023, from 53.2 in June. This is the first time the index has contracted since June 2020. (Source: Institute for Supply Management)
9. Declining retail sales. US retail sales fell by 0.8% in July 2023, from June. This is the first time retail sales have declined since December 2021. (Source: Census Bureau)
10. Shrinking corporate profits. Corporate profits in the S&P 500 fell by 4.3% in the second quarter of 2023, from the first quarter. This is the first time corporate profits have fallen in two consecutive quarters since 2020. (Source: S&P Dow Jones Indices)
11. Declining business investment. Business investment in the US fell by 0.9% in the first quarter of 2023, the first decline in business investment since the first quarter of 2020. (Source: Bureau of Economic Analysis)
12. Rising borrowing costs. Interest rates on loans are rising, making it more expensive for businesses to borrow money and invest. The Federal Reserve has raised interest rates by 225 basis points in 2023, and it is expected to continue to raise rates in the coming months. (Source: Federal Reserve)
13. Slowing global economic growth. The global economy is slowing down, which could hurt demand for US exports. The World Bank has forecast that global economic growth will slow to 2.9% in 2023, down from 3.2% in 2022. (Source: World Bank)
14. Declining stock market. The stock market has been falling in recent months, reflecting investor concerns about a recession. The S&P 500 is down by over 20% since the beginning of the year. (Source: S&P Dow Jones Indices)
15. Rising commodity prices. Commodity prices, such as oil and wheat, have been rising in recent months, which could lead to higher inflation and hurt consumer spending
16. Weakening consumer spending. Consumer spending is the engine of the US economy, and it is showing signs of weakening. Retail sales have been declining in recent months, and consumer confidence is at a low level. The Conference Board's Consumer Confidence Index fell to 95.3 in August 2023, from 103.2 in July. This is the lowest level of consumer confidence since February 2021. (Source: The Conference Board)
17. Rising consumer debt. Consumer debt is at a record high, and this could make consumers more vulnerable to a recession. If consumers have high levels of debt, they may be less likely to spend money if they start to lose their jobs or if their income declines. According to the Federal Reserve Bank of New York, household debt in the US reached $16.15 trillion in the first quarter of 2023. This is the highest level of consumer debt on record. (Source: Federal Reserve Bank of New York)
These are just a few of the many signs that the US economy is headed towards a recession. It is important to be aware of these signs and to take steps to prepare yourself for a downturn.
How a recession will affect the residential housing market
A recession can have a significant impact on the residential housing market. When the economy is doing poorly, people are less likely to buy homes. This is because they are more likely to be unemployed or underemployed, and they may be worried about their financial future. As a result, home prices tend to fall during a recession.
In addition, the Federal Reserve typically raises interest rates in an effort to combat inflation. This makes it more expensive for people to borrow money to buy a home, which further depresses the housing market.
The housing market is already starting to show signs of weakness. Existing home sales have been declining for six consecutive months, and home prices are starting to level off. If a recession does occur, the housing market is likely to decline even further.
What does this mean for home sellers?
If you are thinking about selling your home, it is important to be aware of the potential impact of a recession. If the housing market declines, you may need to sell your home for less than you originally anticipated. You may also have to wait longer to sell your home.
If you are planning to sell your home in the near future, it is important to price your home competitively and to work with a qualified real estate agent. A good real estate agent can help you market your home effectively and negotiate the best possible price for you.
New Jersey Residential Real Estate
The New Jersey residential real estate market has been relatively resilient in recent years, but it is still vulnerable to the effects of a recession. In the last recession, which lasted from December 2007 to June 2009, New Jersey home prices fell by about 23%. This decline was less severe than the national average decline of 32%, but it was still significant.
The median home price in New Jersey fell from $311,000 in 2005 to $254,000 in 2012. It took several years for the New Jersey housing market to recover from the recession. Home prices did not reach their pre-recession peak again until 2017.
Effects of the Last Recession on New Jersey Home Prices
The last recession had a significant impact on the New Jersey housing market. Home prices fell sharply, and many homeowners found themselves underwater on their mortgages. This means that they owed more on their mortgages than their homes were worth.
The recession also led to a decline in new home construction and an increase in foreclosures. As a result, the New Jersey housing market took several years to recover.
What to Expect in the Next Recession
If the US economy does enter a recession, it is likely that the New Jersey housing market will be affected. Home prices may fall, and there may be an increase in foreclosures. However, it is important to note that the New Jersey housing market is in a much stronger position today than it was before the last recession.
The unemployment rate in New Jersey is low, and the state has a strong economy. This suggests that the New Jersey housing market is less likely to experience a sharp decline in the next recession. However, it is still important for homeowners and buyers to be aware of the potential risks.
If you are a homeowner, it is important to have a financial plan in place in case the housing market declines. You should also make sure that you have enough equity in your home to cover your mortgage in case you need to sell it quickly.
If you are a buyer, it is important to be patient and to do your research. You should also make sure that you are pre-approved for a mortgage before you start shopping for a home.
