5 Market Recession Indicators to Watch Out For & Know
As a real estate investor, nothing is more essential than following the market to see if there are any indications of a coming recession. While predicting the exact date of a recession is never clear-cut, it’s vital to look for market recession indicators showing any signs of market changes.
To help you keep a watchful eye out for an impending recession, here are five indicators to follow.
Confidence Indexes
The amount of confidence people have in the US economy is highly important. That’s why it’s essential to follow confidence indexes to determine the economy’s overall health. These indexes will show how confident people feel about their income, spending, and savings. It also provides critical insight into confidence surrounding trade tensions that may weaken investments and manufacturing.
As an investor, it’s vital not to get too caught up in month-to-month changes since consumer spending and confidence can quickly flip. Instead, it’s best to focus on negative consumer confidence over a prolonged period. This could indicate a recession is on the horizon, and you should hold off investing in new real estate opportunities and/or adjust your investment strategy.
Yield Curve
One of the traditional market recession indicators is the yield curve. This yield corresponds with all US Treasury maturities ranging from 1-month bills to 30-year bonds.
When the market is normal, the yield curve will have an upward slope. This is because investors believe they will be rewarded for taking on riskier long-term maturities. However, when the yield curve inverts, this indicates that short-term maturities are higher than long-term ones. While different factors can contribute to this inversion, it often concludes that the economy is weakening, and investors should closely monitor the change.
Employment
If you start to notice many people are losing their jobs and cannot find work, it could be a sign that the US economy is headed for a recession. This is because high unemployment rates across the country are indicative that the economy is performing poorly. As a result, you’ll likely see more businesses letting go of temporary workers first than making significant cuts to their employment list to save their bottom line. If you’re invested in real estate development, workers being let go and projects being put on hold may potentially impact your projects.
Supply Issues
When the supply chain is impacted due to shortages and constraints, it can potentially hurt the US economy. This will result in manufacturing lacking the necessary supplies and parts to meet strong consumer demands and may result in them laying off workers, leading to a constraint on production growth. Also, manufacturers may have to close plants or their company to save costs.
This scenario was all too prevalent in the construction industry during the COVID-19 pandemic. Construction companies struggled to find wood paneling, ceiling joists, pipes, and more to complete their projects. As a result, this left them forced to seek alternative options and push their projects out by 3-months to a year in order to have all the necessary supplies to meet the new housing demand.
Foreclosure Activity
If you notice lenders filing more default notices and an increase in mortgage foreclosures entering the market, this could be a key market recession indicator. This scenario was all too true during the Great Recession where millions of mortgages entered the foreclosure process. While we are nowhere near those numbers today, monitoring any changes in foreclosure activity is vital. This will help you determine whether you should invest in new developments and redevelopments or hold off until the market corrects itself.
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