Going South In Unintended Consequences…

“Wars go bad, they go south in unintended consequences;” Jamie Dimon said. “We’re not taking the proper actions to protect Europe from what’s going to happen to oil in the short run.”

Recession Like 2008?

everywhere you look today, the ill omens of bad tidings abound. From inflation that is north of 9%.. to skyrocketing gas prices; all the way down to the local municipality of Tucson, Oro Valley, Marana, or Pima County in general…

Bad decisions are being made at every level.

If you have been noticing the increasing tempo of worrisome economic news, you aren’t alone. According to recent Pew Research Poll, over 60% of Americans are “very concerned” about the price of housing. This same poll identified 56% of Americans believing that President Biden’s economic policies have made the situation worse.

So what does this mean to the average homeowner in Southern Arizona?

For most, virtually nothing. To those homeowners who have no need to sell in the next 5 years; life goes on as usual, albeit while dealing with inflation.

However, for those homeowners who will be needing to sell within the next 5 years, these times can be very treacherous indeed.

For those of us who remember the economic meltdown of 2008, there is a strong hint of reminiscence in the air.

Several people have even gone so far as to make the bold assertion that any potential economic repercussions from 2020, Covid 19, endless money printing, etc. will have “no ill effects on the housing market.”

Any quick Google search of “Why the next recession won’t be like 2008” and you will find hopium galore.

Wars Going South

As American’s go, we are a pretty generous nation. However, when it comes to the $54,000,000,000 USD ($54 Billion Dollars) that the United States Government has given to Ukraine in 2022; I’m not convinced it has worked in our benefit.

I wonder how many schools in America that $54 Billion would have protected. I’m curious to know how many homeless veterans it might have housed. It would be good to know how far FIFTY FOUR BILLION Dollars would have went to fix our bridges, or our roads, but I digress.

What is at hand most notably is the effect that the war in Ukraine has had on the economics of the world From all viewpoints, it appears as though despite the sanctions that the United States has placed on Russia, the ruble is as strong as it has been in the past 7 years.

Even stronger than the US Dollar.

Not to be a “Debbie Downer”, but Ukraine will ultimately have to cede territory to Russia and agree not to join NATO as the only feasible way this war will end. Short of that, the United States will be continuing a proxy war to weaken Russia using Ukrainian troops.

As Ukrainian deaths mount, it seems only a matter of time before all resistance is ultimately crushed.

Unintended Consequences

When wars end as the ultimately do, they leave certain “unintended consequences.” This is simply a euphemistic term for those ramifications which we did not want, and did not expect. Look no further than our disastrous departure from Afghanistan for concrete examples of the Biden Administration’s failure to see the inevitability of their actions.

Some of those “unintended consequences” have far reaching effects into the US real estate market. JP Morgan Chase CEO Jamie Dimon was recently quoted as seeing an “Economic Hurricane” in our future and advised people to “brace yourself.”

Jamie Dimon Says Get Ready for an Economic 'Hurricane'
Jamie Dimon CEO of JP Morgan Chase speaking at Alliance Bernstein Holdings

The “precautions” that Mr. Dimon spoke about was in relation to the need for individuals (and companies) to prepare for what he considered one of the largest economic “storms” to hit our economy.

The need for such precautions was twofold.

One, due to the quantitative tightening that the Federal Reserve has scheduled to help eliminate the $3.3 Trillion from it’s 9 Trillion balance sheet. This reduction of liquidity will make borrowing more expensive.

The other was due to escalating war in Ukraine and troubling concerns in the South China Sea. Rising fuel costs (currently at $106 a barrel) are only making inflation more tangible and universal.

Although inflation, as well as gas prices were on the rise prior to Russia’s “Special Military Operation” in Ukraine, it is undeniable how the sanctions and subsequent aid sent to Ukraine has affected the American Homeowner.

In unintended ways, America is now in a recession that is being exacerbated by our relentless money printing, and irresponsible budgetary spending.

Some of these “ramifications we did not expect” are now coming upon us. The Federal Reserve is expected to raise the federal funds rate again by the end of July. Perhaps even by 100 basis points (1%) with even further rate hikes to come. With every increase in the interest rate to combat inflation, it makes it significantly harder for a buyer to purchase your home.

Additionally, warfare itself bears a toll on the average American Homeowner. In addition to the mental, physical, and emotional travails military service brings, it also affects those at home trying to sell their property. Even though American forces “aren’t currently involved in operations in Ukraine,” it does not mean that this could not expand into more than a proxy war.

With rising tensions at home, and abroad; with weak leadership in Washington, it isn’t hard to see how things can “go south” very, very quickly.

Proper Protections

So what is a homeowner to do in these times? Curl up in a ball and hide until the daylight comes? No.. of course not.

As a Real Estate Broker with over 25 years experience in good and bad markets, I can assure you that a real estate recession is much like a monsoon in Tucson. You can feel the “electricity in the air” as the wind swirls around you at a feverish pace laden with the scent of rain. You can see the clouds darken on the horizon. You hear the crackle of thunder and see the rain starting to fall in the valley south of you. You know it’s raining somewhere.. but the question is… will it rain here?

Tucson’s average appreciation has experienced 22% growth in the past year according to Zillow.

Keep in mind home prices dropped on average 33% in 2008 as reported in a recent report by CoreLogic.

For those who have owned their home for more than 5 years, they have the most equity to lose as the values have increased over 89%.

If you are considering selling your home; the window of opportunity is quickly closing. As the interest rates rise, wars intensify, and inflation rocks our economy, it cannot spell “good times and prosperity” for those trying to sell.

In a future post, I will share with you what makes the critical difference between those who sell, and those who do not during a recession!

In the meantime, if you have any questions, or want to share your thoughts, feel free to let me know using the form below!

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