Planning to Grow Old in the Family Home?

In the course of a week I talk to a lot of people who are over 55 years of age. Most of them live in the home where they raised their family many years ago. And as any real estate agent or broker can tell you, most plan to live out their life right there.

And why not? They’re intimately familiar with the house, and probably with most of the neighbors. In many cases, the house is already paid for, so a mortgage won’t drag down their retirement income. The house may be a little bigger than needed, but that just means it holds more memories–right?

Senior Housing Challenges

Maybe, and maybe not. As we grow older, aging adds new challenges for our bodies. We’re not able to move around as easily, can’t climb stairs like we used to, and we don’t keep up with chores like we used to.

Typically, one of the first things I notice when visiting a 55+ client is the condition of the paint under the eaves of the house. As seniors we’re constantly being admonished to “stay off ladders” or “don’t risk falling and breaking bones.” Needless to say, very few of us get those eaves painted. Often those same physical limitations extend to the gardening tasks we used to love, and to cleaning the gutters of fall leaves.

Aging in place, rather than moving to a less challenging home, will work out well for some seniors, and prove impossible for others. Some people may be able to modify their homes to allow themselves to remain. (See Remodels for Aging in Place in the summer 2019 issue and at https://www.beachchatter.com/2019/09/11/remodels-for-aging-in-place/.)

These changes could include adding: ramps, railings or grab bars; stair lifts; plus additional safety and security features. Making our homes safer as we age is important. It isn’t the whole story, though. We still have to find someone to do the painting, clean the gutters, and make the little fixes we used to do ourselves.

Depending on the need, modifications can be cost prohibitive, and even when they are made, some seniors may still need the assistance of a caregiver. In the end, dollars and cents will weigh heavily on the decision. It may make more sense to downsize, move closer to family members who can help — perhaps into a family member’s casita — or relocate to an active adult community.

Designed for Active Adults

Recent years have seen considerable growth in residences designed and built exclusively for residents who are 55+ years old. Some seniors are still physically capable, but have decided retirement should free them from the mundane chores of adult life. The “active adult” lifestyle afforded by 55+ communities often is the perfect solution.

Imagine suddenly deciding on a romantic weekend out of town and being able to leave immediately. You’re in a secure environment–no need to make special arrangements. Maintenance tasks are all handled for you. You and the neighbors watch out for each other all the time, so just pack and go! That’s the real appeal to 55+ homes–they give you freedom.

In addition to the freedom, planned communities offer opportunities to spend time golfing, woodworking, sculpting etc., with peers who love the same things you do. It could be time in the gym, or lying by the pool. Whatever your favorite things are, there’s a 55+ complex out there to help you enjoy them.

There are trade-offs. Typically a down-sizing senior goes from three or more bedrooms, in 2500+ square feet, to a two bedroom unit with less than 1200 square feet. That means a lot of furnishings, knick-knacks and memorabilia get sorted and distributed. It’s work, but handled appropriately can be a valuable experience in turning the familial reins over to the upcoming generation. Writing these words, I have a mental picture of the happiness when my wife gifts her grandmother’s jewelry to our granddaughter. It certainly outshines putting family heirlooms in a will to be routinely read out with no hugs and tears of joy.

Senior Renters Face a Shortage

Seniors who own their homes have the option of modifying their homes or selling and downsizing. But senior renters, living on a fixed income, are much more vulnerable to the rent increases that are occurring more frequently across California.

In a growing trend across the nation, investors have been buying up rentals in bulk and raising the rent and/or sending eviction notices to senior tenants. (See article in the Los Angeles Times.) Tenants who try to fight the increases face lengthy and costly legal battles that don’t always turn out in their favor. The result?

In Los Angeles, 26% of no-fault evictions happen to residents who are 62 years or older. In contrast, roughly 13% of the city’s units are occupied by seniors. Thus, the eviction rate for seniors in Los Angeles is almost twice as large as it is for other age groups.

No-fault evictions usually occur when a renter is living with a month-to-month lease. Some seniors are unaware they have this type of lease, as when their annual lease ends the landlord may choose to continue the lease on a month-to-month basis. Then, when the landlord decides to re-list the unit at a higher rate, they may simply evict the long-term tenant with very little notice.

The number of homeless seniors is rising at an alarming rate. In Los Angeles, the number of homeless seniors rose 22% in 2018, leaving 4,800 seniors on the streets. Experts predict the number could rise to 30,000 by 2030.

Decisions, Decisions, Decisions

In summary, the three overarching choices for seniors considering a change in housing are: remain in the family home, sell and move to an active adult community, or try to secure stable rental housing. There are lots of variations on each theme. For example, one could rent out the family home to provide an income to cover the cost of a senior rental property.

Regardless of the route you take, the California Department of Aging offers a good deal of assistance for seniors facing housing changes. That department provides more detail about the types of senior housing and assistance here.

For those of you who are considering making a change in where you live, we would be happy to sit with you and find answers for any questions you may have.

Yes! Staging Works!

This summer I saw an amazing example of how effective staging a vacant home can be. If you’re debating the merits of staging your property, whether currently on the market or still in planning, consider this example.

The property in question had been listed for lease in February at $3800 per month. It languished on the market for six months, dropping in price to $3650 in the meantime.

In August the seller listed with a different agent asking $3900 per month. It leased for $3750 in less than 30 days!

After sitting vacant for six months, at a loss of $22,500, what changed? Besides the new agent, the whole look of the property changed! The new listing agent brought in a professional stager, who added furniture, and hired a top-rated photographer who showcased the new decorating gorgeously.

The cost? At over $1000, was it steep, or cheap?. Compare that to the $22,500 lost while seeking a tenant and it comes out looking like a bargain.

This is only one example, and could easily be an anomaly. However, having watched this process repeat over and over, I’m firmly convinced that the cost of a highly professional stager, photographer and broker will be vastly offset by the increased purchase price and/or the rapidity of the sale.

After all, would you rather sell in 30 days, or six months? And would you prefer more money, or less?

Who you hire as your agent really does matter!

Photo by Sidekix Media on Unsplash

Bœuf a la Bourguignon

First, how does one pronounce that impossible looking name? “Bœuf,” French for “beef,” sounds like a cross between “bif” and “buff.” Say it quickly and you’ll be close enough. “Bourguignon” is bu̇r-gēn-ˈyȯn. Just remember that the letters “g-n” are pronounced in French as though they were “n-y.”

But, you don’t need to pronounce it to love it. This is the dish Julia Child described as”…certainly one of the most delicious beef dishes concocted by man.” This version is considerably simpler than that in Julia’s landmark book, “Mastering the Art of French Cooking.”

Remember to use a good wine—a bad wine doesn’t improve with cooking.

This recipe can be adapted for a slow-cooker. Before loading up the pot, be sure to brown the ingredients as noted here. All ingredients can be added at the beginning except the mushrooms, which should be added at the end.

Ingredients

  • 3 tablespoons olive oil
  • 3 pounds boneless beef rump roast, cut into 1-inch pieces
  • 12 ounces button mushrooms (trimmed), halved or quartered if large
  • Coarse salt and ground pepper
  • 5 strips bacon, cut into 1/2-inch pieces
  • 1 white onion, coarsely chopped
  • 1 tablespoon tomato paste
  • 2 tablespoons all-purpose flour
  • 3 cups dry red wine
  • 2 cups beef stock
  • 2 bay leaves
  • 4 garlic cloves, smashed and peeled
  • 4 carrots, peeled and cut into 1-inch pieces
  • 10 ounces pearl onions, peeled
  • 1 tablespoon butter, cut into pieces
  • 2 tablespoons fresh parsley, chopped (optional)

Process

  1. Preheat oven to 350 degrees.
  2. In a large Dutch oven or oven-safe pot with a tight fitting lid, heat 2 tablespoons oil over medium-high. Add mushrooms and pearl onions. Cook until browned, about 10 minutes, then set aside.
  3. Season beef generously with salt and pepper and add to pot. In batches, brown beef on all sides, 2 to 3 minutes per batch (adding up to 1 tablespoon oil per batch, if needed); transfer to plate.
  4. Pour off all but 1 tablespoon fat from pot. Add bacon and chopped onion. Cook over medium heat until brown, about 5 minutes.
  5. Add tomato paste; cook, stirring, for about 30 seconds.
  6. Add flour and cook, stirring, 30 seconds.
  7. Return beef to pot; add wine, broth, bay leaf, and garlic. Bring to a boil, cover, and transfer pot to oven; cook 1 1/2 hours.
  8. Add carrots and cook until meat is very tender, 1 to 1 1/2 hours more, adding mushrooms 15 minutes before end of cooking.
  9. Stir butter into stew and serve topped with parsley.

Serve spooned over noodles, rice or mashed potatoes, or even a baguette.

Adapted from Martha Stewart’ version of Julia Child’s quintessential recipe. Wine photo by Lefteris kallergis on Unsplash. Food photo by unknown.

ADUs and Rent Control

We had a call recently asking how California’s new statewide rent cap laws impact homeowners who are supplementing their income by renting out an Accessory Dwelling Unit (ADU). The primary concern was, “Is the owner forced to keep a tenant or pay relocation if they decide to quit renting?”

The question stems from what is called the “just cause requirements” of the new rent control law. Our client was concerned about a decision to evict the current tenant and allow a grandchild to occupy the ADU while attending school locally. If “just cause” applied, it would require they provide relocation assistance to their current tenant.

Renting a part of your home, whether a single room or an entire “guest cottage” may be excluded from the law.

To answer the question, we reviewed the rent cap legislation with an eye to what terms would control should a homeowner need to evict tenants from an ADU.

Applicability of “just cause” relocation assistance, and the rent cap of 5% plus the local Consumer Price Index (CPI) both rely on the same tests.

The first of those tests is the type of property. Multi-family dwellings, i.e., everything from apartment buildings down to duplexes are included in the scope of the law. SFRs though, are excluded, and most importantly, an SFR with an ADU qualifies as an SFR and may be excluded if the second test is also met.

The second test relates to the owner of the property. The following owner types are always included within the scope of the law:
A real estate investment trust, as defined in Section 856 of the Internal Revenue Code.
A corporation.
A limited liability company in which at least one member is a corporation.

The bottom line is that “mom and pop” operations do not fall under the rent cap or the just cause eviction sections of the new laws. There is a caveat! You must notify your tenants!

At the time the lease is signed, tenants should be provided written notice that the residential real property is exempt from this section using the following statement: “This property is not subject to the rent limits imposed by Section 1947.12 of the Civil Code and is not subject to the just cause requirements of Section 1946.2 of the Civil Code. This property meets the requirements of Sections 1947.12 (c)(5) and 1946.2 (e)(7) of the Civil Code and the owner is not any of the following: (1) a real estate investment trust, as defined by Section 856 of the Internal Revenue Code; (2) a corporation; or (3) a limited liability company in which at least one member is a corporation.”

Here is a link to the legislation in question:
https://leginfo.legislature.ca.gov/faces/billCompareClient.xhtml?bill_id=201920200AB1482

Prices Soften in South Bay

Here we wrap up 2019 and prepare for 2020, with a tumultuous election at hand and threats of an economic slowdown rearing in the local news. Our first thought is to look for a baseline from which to measure all the changes. So we did some research and assembled actual sales data from the last few years here in LA’s South Bay. Let’s walk, quickly, past some history.

Through 2015 nearly all real estate only became more expensive. Regardless of where you were in the country, or what kind of property you were considering, prices were only going one direction–up. Then, in 2016 the real estate world started changing. Our little corner of the the west coast is no exception. While some areas stand out as successes, others are showing signs of stress.

Torrance prices in the selected zip codes were varied, ranging from a low of 0% in 90505 for 2018 up to a high of 10.2% in 90503 for 2017. You read that correctly–Torrance prices have not gone negative yet! North Redondo Beach has also run positive every year, though 2019 looks like it will end with a mere .7% increase for the current year.

Hermosa Beach dropped a bit of value last year and is projected to lose again this year.

Manhattan Beach is a star performer, with average sales prices consistently above $2,000,000. Surprisingly, the city with the largest average increases is Hermosa Beach, with a price increase of 27.6% in 2015 and another huge price jump 0f 14% in 2017. Both cities declined in 2018 and 2019. Manhattan Beach was down by -1.7% and -2.6%, respectively. Hermosa Beach dropped by -1.6% and -1.0%, respectively.

Manhattan Beach showed exceptionally strong sales only in 2017, with 7 sales on The Strand. In 2018, prices declined slightly, and are projected to decline slightly in 2019.

While Manhattan and Hermosa were making one or two big jumps, south Redondo plugged away with annual increases between 8% and 10% until 2019. Unless something big happens in the final quarter of the year, 90277 will drop by about -6% this year.

After 4 years of increases, south Redondo Beach is slated to lose ~6% this year.

San Pedro has turned in a solidly positive set of numbers, too. The 90731 zip code is poised to show a 2.0% increase for 2019, down from a high of 7.5% in 2015. The 90732 zip code has slipped into negative territory with a forecast drop of -1.5% this year. Prior years have been over 8% increases, demonstrating the desirability of those harbor and ocean views.

San Pedro‘s 90731 has remained in positive increases to date.

The Palos Verdes Peninsula has proven to be quite a “mixed bag” of ups and downs in average sales prices. Rancho Palos Verdes followed a predictable path of gradual increases up to 6.2% in 2018, with a projected decrease of -2.0% this year. The 90274 zip code was all over the map though. It started with an 8.4% increase in 2015, dropped into negative territory the following year with a -4.7%, then dropped another -.8% in 2017, only to jump up by 8.7% in 2018. We’re currently forecasting a 1.5% increase in those prices for 2019.

five_year_avg_price_movement_percent_90274.jpg
The ups and downs of 90274

If you live in the 90274 zip, and are interested in values, give us a call. We are working on a more detailed analysis of where and why distinct PV neighborhoods are seeing values shift on a differing pace. It’s very possible the age of homes in parts of the 90274 zip has pushed them into a “sweet spot” for upgrade or redevelopment. Alternatively, there could pockets not impacted by the economics of the greater community.

Check your city on the chart above. Are your property values still climbing? Or have they already hit the top and started back down?

Market Analysis – October

We’re here in the final quarter of 2019, looking back and comparing this year to 2018. It’s amazing how similar they have been so far in the year. Let’s take a look at the charts and numbers for the South Bay. Keep in mind these are very small movements, in a market that is about as normal and “middle of the road” as we’ve seen in a long time. I’ve shown the charts in large format, specifically so you can see the monthly movement.

Market trend chart for the year of  2018.

Here we see the movement in listings and sales for the year of 2018. Notice the year starts off just below the center line, showing that overall activity is just barely leaning toward favoring buyers. Activity bumps up once in May, again in July and again a bit higher in August.

Note the chart shows a big jump in activity in December. These numbers are not seasonally adjusted, so these properties did actually move off the market. However, they didn’t sell. At the end of nearly every year the local market drops a big piece of the inventory. Listings that have been sitting for months without selling, and similar year-end cleanups, inflate the number of homes leaving the inventory.

Market trend chart for first nine months of 2019.

Compared to last year, 2019 took off the same, running essentially flat until May, when there is a bump up that matches almost identically the May increase from 2018. Slowing down again in June and ramping up a bit for July then August repeats the activity from last year. As fall comes along, sales slow again for September, just like 2018.

It’s important to remember trend data is designed to point in a direction, as opposed to reporting history. I’ve removed the red trend line from these charts so you can more easily see the individual month changes. If you have questions, or would like to know specifics, don’t hesitate to call.

Remodels for Aging in Place

Every year the National Association of Home Builders (NAHB) conducts a broad survey of professionals involved in the housing industry. The results of that survey are published as the Remodelling Market Index (RMI). Among other data collected are details about the improvements made by seniors who plan to live in their current home as long as possible.

The ‘Aging-In-Place’ data includes how many professional remodelers do it, how many of their customers are receptive to it and what kinds of projects are completed. Using data from NAHB’s RMI survey for the 4th quarter of 2018, we look now at some of the specific types of Aging-in-Place projects undertaken last year.

It probably comes as little surprise to most readers that bathroom projects dominated the top spots. Over 80 percent of remodelers who answered the question reported installing grab bars, higher toilets and curb-less showers. The next-most-common project on the list, widening doorways, followed at a considerable distance (59 percent).

Much like the relationship between bathtubs and showers in general, walk-in bathtubs are not nearly as desired as curb-less showers. Only 12 percent of remodelers reported installing walk-in tubs in 2018, and only two of the 14 projects on the Aging-in-Place list were less desirable: lowering kitchen cabinets and lowering countertops.

When NAHB began asking Aging-in-Place remodeling questions in 2004, curb-less showers were about as common as wider doorways. But over the years the share of NAHB remodelers installing curb-less showers has grown, from 54 to 82 percent. Requests for curb-less showers are now nearly as common as higher toilets—even though installing higher toilets also reached an all-time high of 85 percent in 2018, up from 68 percent in 2004.

When the RMI questionnaire expanded in 2006, it started asking remodelers about reasons their customers undertake Aging-in-Place projects. Since that time “planning ahead for future needs” has consistently ranked as the most common motivation, cited by 75 percent of remodelers in 2006, and up to a record 86 percent in 2018.

“Acute age related disabilities” and “non-age disabilities” were also higher than ever in 2018, at 51 and 27 percent, respectively. This is only a 1 to 2 percentage point gain over their previous peaks, however.

Meanwhile, the share of remodelers citing “living with older parents” as a motivation has tended to drift downward over time, from over 50 percent in 2006 and 2007, to under 45 percent in 2016 and 2018.

For further results and more detail on the Aging-in-Place questions in NAHB’s RMI survey, the complete report may be found at http://eyeonhousing.org/wp-content/uploads/2019/05/RMI-2018-Q4.pdf.

New Horizons

For this issue we visit a couple who live in one of the original 55+ communities in the South Bay. The 600 homes in New Horizons were built in the early sixties. Most units have seen some remodelling, while a few have been extensively redone.

The basic units come in three configurations. The two story structures comprising the two most common, with single level ‘A’ units on the ground floor, and single level ‘B’ units upstairs. There are 237 each of the ‘A’ and ‘B’ units in that configuration.

Here an owner has installed a lift chair on the external stair of a two story building.

The two story buildings have downstairs units with essentially no stairs, and a nice patio, frequently enclosed in a wooden fence. The upstairs units have a large balcony off the living room.

New Horizon’s single story, ground level bungalows are highly sought after.

The third style is the highly sought-after bungalow with a total of 126 units. Each ground level building has three units, most in a staggered pattern to minimize shared walls.

Approximately 400 of the 600 units are identified as occupied by the owners. In many cases the official ownership record reflects the names of future heirs. Some units are occupied by seniors, but owned by investors, and we’ve found that often neighboring seniors will purchase available units for their own investment portfolio.

For this visit to New Horizons we’re talking to DeeDee and Arlo (names have been changed) who live in an upper story unit in one of the two story buildings.

  • Q1: How long have you lived here?
  • DD:We bought here seven years ago. It was just what we were looking for. The owner had done a lot of upgrades, so we have dual pane windows & patio doors, and tile floors. A lot of things other units don’t have.
Dining area with custom tile adjacent to kitchen.
  • Q2: Is it your first time living in a condominium?
  • DD:We’ve both lived in an apartment before. This isn’t much different, except for involvement in the association. I was on a committee for a while, but it was too much. After I retire, I’ll get more involved … maybe.
Wide and deep balconies offer immediately accessible outdoor space in addition to large units.
  • Q3: Have you made new friends here?
  • DD:Lots of them! We’re friends with just about everyone in our building and the one facing us.
    AR:It’s like a little Mayberry here. Everyone knows everyone and everything that’s going on. It’s really nice because the neighbors are very watchful. We know when there’s a stranger around, or a wild animal comes visiting.
  • Q4: Have friends from your old neighborhood come to visit? What did they have to say about your new home?
  • DD:We’ve had old friends come by regularly. There’ve been many family birthdays, and even super bowl parties! Everyone likes it. It’s much bigger than most condos.”
The New Horizons golf course has a gorgeous water trap!
  • Q5: Obviously there are things you like and some you don’t care for. What is your favorite part of living here?
  • DD:I play Bunko every second Tuesday. It’s fun and I’ve met a lot of new people–mostly ladies–that way.
    AR:I love the green. Everywhere you look there’s grass, trees, planters, and things growing. The golf course is especially nice with the lake and fountains.
    DD:We’re not at the beach, but being upstairs we get a nice cross-breeze. We wanted to be upstairs because of the extra light coming in and the upstairs units all have attic storage.
Custom built barbeque for al fresco dining on the grounds.
  • Q6: 55+ communities vary considerably in the amenities provided. What does the association provide that you like most?
  • AR:We haven’t even tried everything. There’s a gym with showers, a wood shop with all kinds of tools, and a pottery shop with a kiln. There’s a pool and hot tub here, bocce ball, and a bigger pool over by the recreation center. The rec center has ping pong, pool tables, card rooms, a meeting room with a stage and audio/visual equipment. There’s even a library.
    DD:The association cares for the owners. One of our neighbors needed a lift chair to get upstairs to the second level. The HOA was totally cooperative.”
The grounds are among the most opulent in the South Bay.
  • Q7: How about the things you like least. What would those be?
  • AR:There are all the usual things about living with other people–the gossip, pettiness, and perpetual complainers.”
    DD:The garages are shared, and you can’t really store anything in them.”
    AR:Guests and delivery people have a hard time finding addresses. I usually have to go out to guide them in because there’s a combination of block numbers, building numbers, street addresses and unit numbers.
  • Q8: What are your plans for the future?
  • AR:For right now, we’re staying right here. We’ve talked about moving to Temecula, but haven’t looked into it.”
    DD:We could swap to an inexpensive house there, but we really like being close to the beach and near family and friends.

When Is Assisted Living “In-Home Health Care?”

Last year the Centers for Medicare & Medicaid Services (CMS) expanded how it defines many of the “primarily health-related” benefits that insurers are allowed to include in their Medicare Advantage (MA) policies. Air conditioners for people with asthma, healthy groceries, rides to medical appointments and home-delivered meals are among the new benefits now being considered for coverage by insurers. More importantly, insurers are now allowed to cover non-skilled in-home care starting this year.

Assisted living providers often provide this type of care, such as helping residents with bathing and dressing. Thus, the CMS change opened up the possibility that insurance dollars could start flowing to senior housing and care companies. Analysts already envision major MA insurers buying into senior housing companies to maximize profits.

Technically, the Assisted Living facility is your home,
so “home health care” benefits should apply.

Only a handful of insurance companies are offering any new benefits in 2019. Among them, Long Beach, California-based SCAN, announced its “Returning to Home” and “Home Advantage” offerings in mid-November. SCAN was able to quickly add new supplemental home care benefits because it has covered similar services in the past

To provide these benefits, SCAN already has contracts in place with home care agencies. According to SCAN executives, it’s possible SCAN would contract directly with an independent living or assisted living company if it has caregivers on staff, and residents signed up for these new plan offerings.

It’s possible a retiree will have health care
provided by a medical organization
owned by the insurer. Would that be
considered a conflict of interest?

Both SCAN and Anthem, another major player in the MA arena, have indicated they are open to contracting with senior living providers or otherwise forging partnerships with them. We can expect a variety of differing relationships between insurers and providers as best practices are devised.

As insurance companies create their benefits packages and consider potential senior living moves, some senior living providers are looking at ways to add MA policies to the 55+ living packages they offer.

Sunrise Senior Living has a newly established plan called Sunrise Advantage which is currently offered in four states (California is not included). The Sunrise plan replaces the insurance company that normally comes in between the health provider and Medicare. Physician referrals to Sunrise are up 300% since Sunrise Advantage launched, per Sunrise executives.

Should we allow the health industry,
providers or insurers, to engage in monopoly?

Senior living providers like Sunrise, who create their own plans can tap into the new supplemental benefits as well as more well-established options. The changes promise to add bottom-line value for the senior living business, while enhancing residents’ outcomes and reducing some of their expenses.

Many Medicare Advantage plans already offer some health benefits not covered by traditional Medicare, such as eyeglasses, hearing aids, dental care and gym memberships. The new rules, developed with industry input, expands that significantly to items and services not directly considered medical treatment.

CMS said the insurers will be permitted to provide care and devices that prevent or treat illness or injuries, compensate for physical impairments, address the psychological effects of illness or injuries, or reduce emergency medical care.

The changes were adopted late in 2018, so many insurers are still designing their modifications, and many changes will come in 2020. Some health insurance experts said additional benefits could include modifications in beneficiaries’ homes, such as installing grab bars in the bathroom, or aides to help with daily activities, including dressing, eating and other personal care needs.

Even though a physician’s order or prescription is not necessary, the new benefits must be “medically appropriate” and recommended by a licensed health care provider, according to the new rules.

Recession Chatter

The New York Federal Reserve Bank shows a probability of 33% for a recession to strike in the next 12 months.

A recent Zillow survey of economists and other experts predicts a 52% chance of recession by the end of 2019 and a 73% chance of recession by the end of 2020.

Morgan Stanley economist Chetan Ahya estimates that the trade war with China and threatened increased tariffs, “could wind up in a global recession in about three quarters.”

Sounds very ominous. Of course, the fact it does sound ominous reinforces our tendency to talk about it. Then repeatedly hearing the conversation inflates the concern in our minds. Per Citigroup CEO Michael Corbat, the single biggest threat to the U.S. economy is, “Our ability to talk ourselves into the next recession.” (A Reuters article in April discussed ways in which those in the investment industry avoid using the ‘R word’ to minimize concerns on the part of investors.)

So what prompted this forecast of recession?

One of the key indicators used by many is the ‘inverted yield spread,’ also known as an “inverted yield curve.” Campbell Harvey, a Duke University finance professor first linked yield curve inversions to recessions in the mid-1980s. An inversion lasting three months has preceded the last seven recessions, per Harvey. “From the 1960s, this indicator has been reliable in terms of foretelling a recession, and also importantly, it has not given any false signals yet,” he said.

Without going into a lot of detail, a simple way to think of the inverted yield is this: Typically, a short term loan carries a lower interest rate than a long term loan. It’s logical, in that we are much better at forecasting events over a short term like three months, than we are over a long term, like 10 years. And that is exactly what changed late in March of 2019. It became cheaper to borrow for ten years, than for three months. It was the first time since mid-2007 that the yield curve had flipped.

Whether now or later, it is inevitable that a recession will come. That’s the way our economic system works. And preparing for the inevitable is simply wise. We recommend you evaluate your financial position in light of the possibilities and plan to protect your assets. If we can help with real estate information and valuation, don’t hesitate to call.