Three Things to Know: Are we Witnessing the Advent of a Global Recession?
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By Ryan Casey Stephens, FPQP®
Special Contributor
Sunday marked the start of Advent for the Christian faith, and my family was among the billion or more who celebrate around the globe.
Advents, in the church and in general, mark the arrival of some notable person or event. Many believe that we’re witnessing the advent of a global economic recession – but are we? The Bible recalls signs that pointed to Jesus’ arrival, but are there signs we can find today that hint at the near-arrival of this major downturn? We’ll explore those signs in this week’s Three Things to Know.
Are Tech Layoffs the First Announcement?
It’s widely accepted that a sharp uptick in unemployment signals the early stages of recession. Over the past few months, we’ve seen Twitter eliminate 75 percent of employees, Meta fire 11,000, and Amazon lay off 10,000 just before Black Friday. HP sliced 6,000 workers, Robinhood trimmed 30 percent of staff, while Intel and Snapchat axed 20 percent of their crews.
While the largest culls are occurring in Tech, many corporations are beginning the process of slimming up this winter as fears of recession mount. January is traditionally the month with the most layoffs and firings, so we might expect to see more of these announcements as we inch closer to the end of the year.
Slower Spending is a Signal
Slower consumer spending is both a hallmark of recession and a possible cure for inflation eating away at our wallets. Several of the key metrics we track in this space are already showing contraction (recession), including Existing Home Sales, Small Business Optimism, and Consumer Sentiment.
This week will bring us the results of some key reports that also help us understand consumer spending habits: the Case Shiller Home Price Index, FHFA House Price Index, Pending Home Sales, and PCE Inflation. That last report should help mortgage rates ease further Thursday since we expect another cooler inflation reading.
Big, Flashing Upside Down Sign
The most infamous sign of impending recession might also currently be the most glaring.
As of this writing, the yields of every possible combination of short- and long-term Treasury securities are inverted. The inversion of the 10-year and 2-year alone is nearly a perfect indicator of recession, even without throwing in all of the others. Add to this the fact that the Fed continues to raise the rate, which aggravates these inversions, and the outcome begins to feel certain. Recession is on the horizon.
The big question is, “What does all this mean for Dallas-Fort Worth real estate?”
First, recessions usually bring falling house prices aiding in the affordability of our market. That’s great news for the nearly 30 percent of D-FW residents that are between 20 to 39 years of age and still accumulating wealth.
Second, 10-year Treasury yields tend to plummet during recessions. Since the 30-year fixed mortgage rate is usually two percent higher than the 10-year Treasury yield, we can expect mortgage rates to head significantly lower in 2023. While headlines next year might be dominated by gloom and doom, it’s my hope that real estate and finance professionals will be enjoying the greatest boom in affordability we’ve seen in years.
Ryan Casey Stephens FPQP® is a mortgage banker with Watermark Capital. You can reach him at [email protected].
