Here’s Why an Economic Downturn Could Now Be Imminent

By on Jun 6, 2022

When you’ve been around the commercial real estate industry for more than 40 years, you ideally then clearly understand that our industry moves in cycles. And as much as we don’t ever want to believe that a hot market will ever slow down again, reality over the years has proven otherwise.

With this in mind, many of us have been feeling for a while that the other shoe is going to be dropping on our commercial real estate market at sometime, but we just haven’t been certain as to when exactly this will finally happen. However, with recent changes in the overall market, including within the financing market, as well as with recent predictions from some very high-profile business leaders, I’m now thinking that we are likely getting very close to a downward transition within our commercial real estate market.

In addition, when it comes to observing the first warning sign that this is happening, my observation over the years has been that it tends to begin with buyers no longer being willing to pay today’s high prices, and no longer being willing to bid the price up over and above the owner’s asking price.

In the beginning of the transition to a down market, it’s normally not like there’s a sudden, dramatic downturn happening within the market, but rather, a bit of a cooling off experience within your buyers’ interest in purchasing.

Then when you combine something like this with the recent rise in interest rates, causing buyers to now have to pay more money per month on their loans when they’re buying property at today’s prices, this can help to reinforce a buyer’s decision to cool down with respect to their overall interest. In addition, important business and financial leaders like Elon Musk, Jamie Dimon, and Lloyd Blankfein, the latter two who are very important leaders within JP Morgan and Goldman Sachs, have now come out very publicly, stating their very dire concern for what they now expect to see happening within our economy.

And those guys wouldn’t come out very vocally and very publicly like that, unless they were certain that their predictions would be proven true.

With this in mind, I remember back in the summer of 2008, when through my own personal research I declared to my readers that the U.S. stock market was poised to totally collapse within the coming months, and I received a number of emails back, telling me that this kind of thing could never happen again here in the U.S. But as we now know, just several months later, the market collapsed, sending us into a new era that would later become known as “The Great Recession.”

Now I’m not telling you this to scare you, but rather, to have you become prepared. Great, hot real estate markets are wonderful to experience and to be in the middle of, but they all have to run their course, and end.

Keeping this in mind, I remember in the buildup towards The Great Recession, that there was a very prominent real estate economist who kept telling everyone that any talk about a coming major real estate downturn was completely unfounded, and the guy couldn’t have been any more wrong with his prediction. Then I finally realized that when the people paying you for your predictions only want to hear good news, you risk losing your job when telling them that bad news is coming.

But for me, I don’t have anyone paying me money for my predictions, and while I don’t like telling you bad news, I certainly don’t believe in sugar coating things, either.

So be prepared, and if you do notice a cooling off in your buyers’ interest within your market, and you begin observing that deals just aren’t making the same kind of sense to them anymore, this could be an early warning sign that your market is now beginning to undergo this type of transition.

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