As 2012 draws to a close, the threat of the federal government going over the so-called ‘fiscal cliff’ has raised the specter of a potential recession in 2013. At the risk of being mischievous, MortgageOrb polled a number of mortgage banking experts to wonder what a recession would mean for the residential home loan market. ‘There is always a chance of recession,’ says Stuart A. Feldstein, president of SMR Research Corp., based in Hackettstown, N.J. ‘But it is unlikely, as long as the executive and legislative branches can avoid the fiscal cliff. Since it would be so crazy not to do this, I would put the chance of recession in 2013 at only around 10 percent to 20 percent.
‘The problem for housing in 2013,’ continues Feldstein, ‘is that if the GOP plan is the one selected, the mortgage interest deduction is, by far, the largest target. Assuming this happens, the impact would be to discourage sales of high-end homes and, therefore, push down their prices. Also assuming that only the wealthy lose these deductions, it would not discourage other home sales or prices. So, there is a substantial likelihood that in 2013, we'll see housing counter-trends – not good for expensive homes, but a stable market with continued price increases for all the rest.’
Chris Sorensen, founder of Los Angeles-based Homeownership Education Learning Program, is not certain if a recession would worsen the current housing environment.
‘If we went into a recession, housing will be minimally impacted from where it currently is – it is already below the bottom,’ he says. ‘With the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. changing the accounting rules for the banks in October 2008, there is little motivation to quickly remove non-performing assets off a bank's balance sheet if it means greater risk exposure to the bank or tax payer. This means they'll continue to release inventory in a methodical manner rather than any wave of real estate owned properties that so many agents have been dreaming about for years. ‘Investors looking at a long term buy-and-hold strategy, as well as buyers with means and the segment of the market that has equity, will continue on with business as usual,’ Sorensen adds. ‘Those that would be sidelined due to a recession, I believe, are already there, and by the time they recognize it's over and decide to take advantage of the recovery, it will be in their rearview mirror.’
Brian C. Coester, CEO of Rockville, Md.-based Coester Valuation Management Service, is less concerned about a hypothetical recession and more concerned about hyper-inflation.
‘My main concern is that the current low interest environment is going to lead to a hyper-inflation which, once the rates rise, is going to lead to rapid deflation,’ he says. ‘I don't know if there's any amount of quantitative easing that could prevent this from happening and a recession re-occurring at some level.’
Coester adds that any future adjustment to monetary policy has the potential to trigger another recession at some level. However, he is unclear whether this occurs next year or further down the road.
‘If it is in 2013, 2014 or 2015, I don't know,’ he says. ‘The issue is when they make a move on rates, as it will pretty much dictate the entire economy speed-up or slow-down.’
Also complicating matters is unemployment, which remains too high for comfort despite efforts to push the economy back into recovery. Rick Seehausen, president of LenderLive Network, based in Glendale, Colo., believes this lingering scenario would add fuel to a potential recession's fire.
‘In a recession, if unemployment were start to climb, I think we'd see a dip in housing prices,’ he says. ‘That would set us back into the 2009-2010 era, when we saw rising delinquencies and defaults, and more strategic defaults.’
However, David Green, president of The Stonehill Group, headquartered in Atlanta, believes that the job market can be crucial in preventing a recession.
‘The good news is that we've seen many jobs come back to the U.S. that were outsourced,’ he says. ‘Steel industry jobs and manufacturers of major appliances moved back to this country in the last two to three years. To ward off a recession, we've got to keep the jobs in this country.’
And in the event that a recession comes around, John Walsh, president of San Diego-based DataQuick, believes that it might not be a cause for anguish.
‘An argument can be made that a recession will not be the end of the world,’ he says. ‘There are a couple of things that could be the end of the world. For starters, at some point we're going to have to pay the piper for all the money that the government is borrowing. An inflationary environment would be, short-term, very detrimental to this business.’
Nonetheless, few people in the industry are worried about a 2013 recession. And Michael Stone, CEO of The Stone Group in Austin, Texas, believes there is too much at stake for any worst-case scenario to become reality.
‘I don't think there will be a recession,’ he says. ‘I don't think politicians today can afford to screw this up.’
Phil Hall is the editor of MortgageOrb. He can be reached at firstname.lastname@example.org.