I think it is safe to assume nobody studies the numbers for the SW Florida real estate market like we do. Perhaps it is because I graduated with a degree in Finance that I study the cause and effects of the market. This week I want to share a leading indicator. The inverted yield curve predicts upcoming recession and stock market corrections.
Because of this we are better able to spot emerging trends that can affect our customers. We were one of the first to predict the market change back in 2005, and back then everyone said we were crazy. While we educate our customers first, I like to let readers in some metrics I will be watching going forward.
A lot of sellers are asking us if the market is going to crash. My answer would be which market, the US market, or the local market? For the record, I am not saying either is going to crash as the setup for this market is nothing like it was back in 2005. If it were to crash, or even suffer subtle setbacks it would surely mean that interest rates are rising, and the economy is faltering. We know interest rates are already rising and predicted to go higher as soon as March.
Let’s look at the economy. There is one leading indicator among others that predicts the economy, and that is the inverted yield curve. Technically the inverted yield curve refers to the 10-year to 2-year spread. Right now, the spread stands at .62% It has been falling since March 2021 when it stood at 1.58% difference. You can see it is declining, but it does that. We will be watching to see if it reaches 0.
Did you know that the inverted yield curve has accurately predicted every single recession in the United States since the Fed has been publishing data on this back in 1976? It has, and that is a scary accurate leading indicator.
This is why the Fed’s hands may be tied. We have handled inflation all wrong heading into 2022 and it leaves the Fed with few choices. They need to stop borrowing money and taper the bond buybacks. They are doing this, and this program will take trillions out of the economy by end of March. This will lead to higher rates. Secondly, they must raise interest rates. Some say look for 3-6 hikes this year. But doing so could cause the economy to stall and lead to recession. Recession is not good especially with such high inflation.
The working men and women in America are being hit the hardest. Wages cannot keep up with rising cost of living and people are getting further behind. If recession hits, some could lose their jobs.
Some people say the economy is on fire. January numbers show 467,000 jobs were created. Were they really? We have 10.9 million unfilled jobs in the United States, and they report 467,000 jobs were created. Perhaps 467,000 people decided to go back to work because they had to. Be careful which headlines you read. Track your own numbers.
We cannot say what will happen. There are too many wildcards and too many decisions to be made by others. We can report on what we look at to evaluate. The inverted yield curve predicts recession before it happens. It may or may not happen, but it will be fun to know ahead of time if you look at the right tools.
We hope you enjoy reading about how we analyze the market. It may be kind of geeky, but if you are buying or selling, it pays to know a geek.
If you are thinking of selling your home, call Brett or Sande Ellis 239-310-6500. We might be geeks, but we’re easy to talk to and we know our stuff. Or visit www.SWFLhomevalues.com for an instant and Free home valuation on your home.
Good luck and happy selling!
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