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President Moyer: The Inverted Yield Curve and Media Chatter

November 7, 2019 in Guest Columns

Last month we were fortunate to have Dr. Lawrence Yun, NAR’s
Chief Economist and Senior Vice President of Research, speak at our Residential
and Commercial Real Estate Forecast. Dr. Yun always provides great information
and has the ability to put data into perspective. Putting things into
perspective is not always easy, but critical as we navigate the coming election

As REALTORS®, we understand the importance of neutrality. We
rely on data to support our pricing, the value of our marketing and feedback
from the REALTOR® community to represent our clients effectively. We hear daily
from one source that a recession is imminent and from another that the economy
is great and there is nothing to worry about. Our message to the community
should be based on facts.

Dr. Yun provided us with good objective talking points. As
we discuss real estate with our clients, centers of influence or posts on
social media, I urge you to stay focused on facts, not opinions.

Dr. Yun predicted in both the residential and commercial sessions that
if there is no major trade war, the economy will continue to expand. He
predicted GPD (gross domestic product) will increase 1.6% and CPI (consumer
price index) will increase 1.7%.

With existing home sales steadily rising since 2011, Dr. Yun predicted a
continued increase of 4% nationwide for 2019, which would bring the national
count to 5.6 million existing home sales. He predicted that the median price of
homes would increase 3.6%, but the 30-year mortgage interest rate stay near its
current rate of 3.7%.

If you would like to impress someone in
your conversation, talk about the Inverted Yield Curve. Dr. Yun
explained the inverted yield curve as one of the most accurate predictors of a
recession. Remember, a recession
is defined as a period of temporary economic decline during which trade and
industrial activity are reduced, generally identified by a fall in GDP in two
successive quarters.
The inverted yield curve has accurately predicted
previous recessions, but this time maybe not. An inverted yield curve is an interest rate
environment in which long-term debt instruments have a lower yield than
short-term debt instruments of the same credit quality.

As you can see
from the graph, we are in that situation. So, what is the difference today? As
Dr. Yun explains it, the rates are both very low, and as a result, it likely
will not have the same effect.

If you want
your clients and future clients to see you as their trusted real estate advisor,
be a positive, but factual voice. Do your research, stay informed and prove
your value.

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