Analyst Predicts Next Recession Will Bottom Out Housing Prices Quickly
A Senior VP at Real Capital Analytics is claiming the drivers for the current economic downturn are different from the ones that spurred the global financial crisis over a decade ago.
In his post, Jim Costello warned that the "warning bells" leading up to the previous recession were not prevalent in indicating today's financial predicament, claiming this downturn "came on suddenly". Costello claims the variation in drivers could lead to a faster race to the bottom for market prices this cycle.
“Until the medical issues are addressed, nobody knows how long the weakness in property income will last nor how bad the long-term damage will be,” Costello continues. “Still, the magnitude of this downturn is becoming clearer given the pullback in market liquidity.”
To analyze indicators of market liquidity Real Capital Analytics combines various indicator metrics into a composite score of liquidity across the global markets. "One high-frequency indicator employed in this scoring system is the number of unique buyers active in the market and this metric for the U.S. is collapsing faster in this downturn than the last."
Costello elaborates further, "The speed of the decline has been so intense this time that the market is at nearly the same level for the unique number of buyers as seen at the worst parts of the GFC. A drop in the size of the buyer pool that took nearly 20 months in the last cycle has been nearly achieved in 10 months in this downturn."
To end the summation of the post, Costello leaves us with a cautionary projection for current property owners, "Still, when those buyers are back on the road they are not likely to be as optimistic as a year ago. The speed of the pullback in liquidity is likely to help investors find a floor for prices faster this cycle."