The yield curve "inverts" when the return on short-term bonds surpasses that of long-term bonds. Most notably, the 2-Year bond surpasses the return on 10-Year bonds. My latest article on BiggerPockets delves into this topic and what it means for real estate investors. Although, I think the contents is very important for any sort of investor, businessman or person who wants to be prepared for an economic downturn.
As I note in the piece,
The spread on the 2Y-10Y is slightly positive (0.06 percent) as of this writing, but it briefly dipped negative in August. A 2Y-10Y inversion has preceded every single one of the last nine recessions—although by as much as 34 months. For the 2007-2008 Great Recession, the yield curve inverted 22 months prior to the bottom falling out.
I also go into a bunch of other economic data showing that we are likely heading for a downturn. So, in my opinion, the odds of a recession in the next 12 to 18 months is considerable. Nothing (and I mean nothing!) in economic predictions are a sure thing, but it would be wise to prepare for the worst.
And how should you do that as a real estate investor? Here are the five tips I give:
1) Don't Make Radical Changes or Simply Wait on the Sidelines
2) Hold More Cash
3) Shy Away from D Properties
4) Tighten Your Buying Criteria
5) Be More Cautious about Development
I go into much more detail in the article (it's about 2500 words) so check it out and be prepared!
"Every day is a new life to the wise man."
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