Welcome to Recessionary Wave #2 of what I call The Phoenix Great Depression. I've been blogging about a prolonged period of economic downturn since 2018. This is it, I believe we're now heading into what will be the worst part of the 2020's now. That's the bad news, a gnarly recession that will be comparable to the Great Recession. If you lose your job, or have an absurd amount of debt, things will get tough. But we'll get through it. We all made it through 2020, and that was an actual economic depression AND a 100 year pandemic, at the same time.
What does all this mumbo jumbo mean for you, an average working American?
(One) Prices on every day things, will keep rising, in general. Gas prices have back off, but food, household items, and utilities will probably keep rising for a while.
(Two) Home prices are beginning to come down in many cites, particularly in the West, Southwest, and the South. They will probably drop quite a bit more, particularly in cities with lots of high tech, like the San Francisco Bay Area, L.A., Seattle, and Austin. The smaller cities that saw huge home price increases during the pandemic (Boise, Denver, Salt Lake City/Provo, Nashville, etc.) will see really big price drops. The Northeast, Midwest, and plains states will see mild real estate declines.
(Three) Rent prices MIGHT actually decline in some of the higher priced cities, over the next year. This is iffy, but the potential is there. We'll see.
(Four) Interest rates will go up more next week, after The Fed's meeting, by .5% to .75%, and will most likely go up .5% more later this year. Loans of any kind will be harder to get, and charge more interest for a year or more. Credit cards, new student loans, car/truck loans, business loans, and home loans. So 30 year fixed mortgage rates should be around 7.5% to 8.5% by the end of 2022. The Fed can't lower interest rates, even if we fall into a deep recession, until the inflation rate (CPI) is down below 3% or so. That will probably be LATE 2023.
(Five) The GOOD NEWS- If you have some money set aside to invest. Asset prices should drop dramtically over the next 6 months to a year. We will see some of the best prices for stocks, real estate, crypto, and collectibles in this coming year. If you're in a position to buy any of these, and you do your homework and proper due diligence and search for great deals, there will be many amazing deals to take advantage of. I'm talking of long term investments, not day trading gambling. Some of the best deals of the next couple of decades will happen in the next year, in my opinion.
Recessions are when everything goes on sale, and almost nobody wants to buy
Here's where we're at right now. Inflation is historically high, it's been over 8% (annual average) since March, and it was 7.9% in February. It's been over 6% since last October. Today's numbers came in at 8.3%. That means The Fed (Federal Reserve) will keep raising interest rates to slow down inflation. If they figured inflation that same way they did in the 1970's, today's inflation would be higher today than it was in 1979-1981. (Check Shadow Stats for details)
A good "yardstick" for watching interest rates is the U.S. 10 year treasury rate (chart here). It was about 1.77% at the beginning of 2020, and is 3.43% today. That's a HUGE jump in interest rates. Most people pay more attention to the 30 year fixed mortgage rate, the interest you pay to buy a home. Using the Google calulator, that's now just over 7% (20% down, $500K loan, 698 FICA score- the US average score). Those mortgages were about 3% in January. Home mortgage rates have more than doubled this year, and they WILL go higher.
Next week, The Fed (F.O.M.C.) meets, and they are expected to raise interest rates another .5% at least, and likely .75%, after today's inflation numbers. So we know most interest rates will follow that lead, and rise as well.
Inflation should slowly calm down, and will likely be around 6% to 7% by the end of this year. But The Fed wants 2% inflation, and that's a long ways away.
Overall, we're heading into another gnarly recession. It's always smart to pay down your highest interest debt as much as possible. It's smart to keep learning new job skills for your current job, to avoid layoffs. If you do get laid off, figure out what job skills you may need to learn to get a new job, or find a new career. A LOT of people, MILLIONS, will have to find new careers in the next few years, that's just the nature of these crazy times we are in, something I've written a lot about.
Most people, generally, will have to cut back on spending, and just buckle down and work through this, like every other recession we've all lived through. It's not the end of the world, though it may feel like it at times, for some people.
I know this is not what everyone wants to hear. But I'm a futurist thinker looking at what's really happening. Like I said, there will be a lot of great deals on big assets, and there will be a lot of cool news businesses that start in the next 2-4 years, and grow after that. So that's my take on things. If you don't know whether you should listen to me, here are a couple of blog posts from months or years ago.
The Economy for 2022- March 22, 2022
Predictions: As we head blindly into 2020- January 26, 2020
A Beginner's Guide to the Next Great Recession- August 9, 2019
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