Recessions, 2025 & new animal spirit beginnings.
I’ve noticed a trend in people’s New Years wishes this year; they are subdued. There is a tangible feeling of gratitude for surviving 2024 and a yearning for better in 2025 that feels more pronounced than in years past, and more widespread.
This malaise may have roots deeper than our own personal measures of well being this time, it may be economics messing with both our personal and population level well being index.
My economics students will tell you that when it came to GDP and how the U.S. measures recessions, I had a lot to say on the matter.
I was known for teaching that GDP was an ineffective tool for understanding the economy, but since it was consistently wrong, it was useful for understanding trends. The U.S. dates and declares recessions in arrears, measured by two consecutive declining quarters of GDP. Unemployment, while tied to the productivity aspect of GDP and consumer spending, isn’t a measure used to determine a recession. And with the rise of the gig and multiple project independent contractor economy, doesn’t measure the economic well being of people counted with “jobs.”
The root of the problem is that people don’t feel GDP at a personal or household level, if military spending goes up and increases GDP, this is only directly felt by those that receive the benefits. To shorthand it, a recession might not be reflected in the numbers but still be real.
More important for understanding the health of the economy are measures such as consumer sentiment and business and personal investment. These indicators reflect the optimism and hope for the future and tend to predict market changes in advance.
In 2022, consumer sentiment plummeted and over the last two years measures of economic discomfort like household consumer debt (not mortgage) and delinquencies increased at a rapid pace.
In the fourth quarter of 2024, there was a marked increase in consumer sentiment and if that holds, the general malaise that has been gripping the economy should release. Inflation coming down combined with optimism, could lead to a strong economy in 2025 provided that it spreads to the consumer through wages and real job growth.
John Maynard Keynes, an economist who founded most of what is taught in economics classes and helped create GDP, also spoke of the animal spirits in the economy. These spirits don’t care about unemployment or GDP saying the economy is fine, the individuals making decisions will decide how they feel and act accordingly. And if enough believe things are getting worse, it will add up to a recession that may or may not get measured in data.
If you have read this far through economic prognostication, the long and short of it is that we have lived through an Animal Spirit Recession and that malaise has probably cast a tint over all of our well being, economic and personal. But signs are it is lifting in 2025.
What it means for real estate remains to be seen, but I suspect 2025 is going to be strong as pent up demand from buyers releases.
New Real Estate Trend-Buy Low-Profit-Sell High
The adage Buy Low-Sell High exists for a reason, profit and gain happen in investments by timing the market. For first time buyers, the key is to just buy, the earlier you own the higher your likelihood of higher than average wealth.
But what about those that own and can time the market to avoid buying and selling at the same time? We were a part of this trend this year as were a number of my clients, many reading this now.
The idea is to purchase the home you want for the long term at the low of the market and then sell your current home when you are ready to move into the new forever home full time. This iteration of real estate allows you to AirBNB your long term home while it waits for you and stay in yours, particularly if you are waiting on kids graduation or other life events to move.
Here are my 3 favorite things about this model:
Your purchasing power is at a high and your seller proceeds are maximized.
Short term rentals like AirBNB allow you to retain control of your future home without turning over to a long term tenant so you can renovate in spurts.
You earn income to pay for the remodels as you go.