PODCAST TRANSCRIPT:

Ian R: Oh, we’re recording. Welcome back to Inspector toolbelt Talk everyone, I just realized that we are recording. Hey, Beon good to have you back here.

Beon DeNood: Thanks, Ian. Yeah, it’s good to be back. I’m excited about the topic today because we’ve been doing this quarterly thing of, you know, our market outlook projection and it’s kind of become a staple of our podcasts. It’s one of our most listened-to episodes. So I’m happy to have another one.

Ian R: So, you know, it’s kind of funny, though, is going back and listening to our market outlook podcasts. I’m pretty proud. We kind of nailed a couple of those things, didn’t we even some things that, like economists were saying this and that, and, you know, just in our little niche industry of home inspections, we pinned it pretty good. I was proud of ourselves.

Beon DeNood: Yeah, we have done pretty good. Not enough where I want to get too cocky.

Ian R: What it’s just like totally dropped the ball on this one.

Beon DeNood: So what’s it going to be in? Let’s, let’s figure it out. Yeah. You know, I do agree, because I think even though once can look at the economy and give, you know, predictions of where the economy’s going, or the housing market, when you look at the inspection market, it’s another layer, you know, so it, it doesn’t necessarily play by the same rules as the others. That’s why maybe sometimes a little harder to predict what’s going to happen?

Ian R: Well, you know, history repeats itself is what people say. So, I mean, I had home inspection business and the Great Recession, you know, and I remember before that, and how things kind of look, it’s not the same. It’s not the same situation by any means. Everybody keeps asking that question. We actually asked Nick, that question, do you think this is another 2008? He doesn’t think so. You know, there are similarities to where you see the market going with home inspections, I don’t think there’s any big economist or well-known economist, rather, some big company out there, saying, hey, let’s predict the home inspection market. They look at it from a real estate angle, we’re really looking at it from our niche of home inspections, and how it affects us, but man, as of what was it, it was June 13, and the US economy is officially in a bear market. So that was the first time that they could actually say, instead of saying, Hey, we could be entering one, it’s official, there’s a bear market. There’s a lot going on and it’s interesting to hear what some people are saying on Facebook groups, I even listen to a podcast and they’re saying, Oh, this is going to really slow down the home inspection industry. I, I’m going to start off this podcast by saying we’re going to go over the facts, but I’m going to tell you why it’s the exact opposite of that. I’ve been in this position before. I’ll tell you why. It is a good thing for home inspectors. Matter of fact, I just saw someone post that this is going to be the best time for home inspectors ever, because it’s going to be a buyers market again, there’s going to be we’ll go over all that stuff. I really do believe that this is going to be unfortunately bad for most people but good for the home inspection industry. So let’s see if our predictions actually work out this time again, because I actually wrote down, and find things that we got wrong. I couldn’t find anything we got wrong. So I’m like, Oh, that’s not bad. A couple of dudes thrown around some information. We actually got it right.

Beon DeNood: Yeah, yeah. No, we have done pretty well. It’s interesting. What you pointed out there as far as a bear market is concerned. Yeah. One of those buzzwords and everyone’s like, Oh, hey, man, you hear we’re in a bear market now. So yeah, I mean, all that effectively means is that, you know, we’ve dropped 20% from the last high, you know, so that was the s&p 500, just a couple days ago, just posted that massive loss that brought us over that line but other indicators, I mean, like, have already in March, as NASDAQ dropped into what, you know, we qualify as a bear market. There are obviously other indicators to determine the health of the economy, inflation, and everything now, instead of getting all overwhelmed by all of those, what does it mean for my business? Because it all has different impacts? I think the one statement you made is absolutely critical for home inspectors. The question is, is it a buyer’s market? Buyers’ markets are good for home inspectors’ seller’s markets. That’s what we’ve just been through. Very strong seller’s market and it was not good for home inspectors. So looking at everything, I guess, throughout the discussion, we’ll be able to answer that question. Are we in a buyer’s market yet? Will we soon enter one? How long is it going to be? I don’t know Ian, what do you think?

Ian R: So, personally, I don’t think we’re in a buyer’s market yet. I say personally, I don’t think anybody would say we’re in one yet, but the numbers are indicating that we will be in one here very shortly. So we talked about rising interest rates in our last podcast on this subject and that’s really starting to affect things. So they just released on realtor.com, MarketWatch, and a couple of other big ones that the mortgage application activity index dropped to the lowest in over 20 years. That’s, so that’s even less than the great recession. So that means there are fewer people applying for mortgages right now, both refinance and new homes than in the past 22 years to be exact. So since 2000, that’s a big deal. So we’re not going to feel the effects of that for a while, because most people have already filed their application for a mortgage, when they’re buying a house right now, we’re going to start to feel that in the fall time, probably by the time we have the next podcast on this subject, we’ll be starting to see the ramifications of that. Again, it’s refinancing and new home purchases. Also, those same things that have to do with the mortgage rates, are now anticipated that mortgage rates are gonna hit 5.5%. Economists only predicted they would hit 3.6%. That’s a big jump. Matter of fact, if you go on like Zillow or realtor.com, and they give you the anticipated interest rate of your mortgage, right now, they’re guessing about 5.9. Because by the time they get it all processed, they’re like, No, it’s going up. So that’s what the big companies are anticipating mortgage rates being and that really affects people. That’s a big deal.

Beon DeNood: Yeah, it really does. I mean, I think the numbers like 5.7, 5.9 by the end of the year, and from where, you know, even if you go historically back, like even before the Great Recession of 07-09. We ended up around 5%. At that time, you know, say okay, we’ve had these interest rates before, but we were coming from higher interest rates going down, you know, now we’re going the other direction. So it’s been super, super low, people have been locking in sub-3 % mortgage rates. Now it’s up to 5.7. So you have the big psychological overhead, they’re like, Whoa, that’s a high-interest rate. You know, buyers are, are wary to enter the market, where they are paying such high comparatively interest rates?

Ian R: Well, yes. What it does is it reduces the pool of buyers. So that’s what we have right now, we have not enough houses and a large pool of buyers. So let’s go back and hypothetically say that there are 10 buyers for that one house. So now you have interest rates that push people out of the market, there are two buyers gone. Inflation. So now these people don’t have enough money and it doesn’t fit in their budget, there are another two buyers gone. Each one of these things pulls buyers out of the market. Until now you have one buyer for every house. Or maybe you have one buyer for every three houses. So it just affects the number of buyers out there. So I guess going back to the point where say that’s good for home inspectors, inventory is going to go up. Buyers’ numbers are going to go down. It’s not necessarily going to reduce the number of inspections, if anything, that can make it go up. So I remember right after the Great Recession. People were really careful about buying a house. Oh, my cousin, they bought a house, and now they’re underwater. All that stuff is going to happen again. So people are very careful. Sometimes people go through three houses and get an inspection on each one. Well, we walked away from that one because we didn’t like the flowerbed out front. So we walked away, you know, it’s a buyer’s market. It didn’t really matter of fact, that’s the time period that I built three inspection companies. You know, it was like right after the Great Recession, because people were very careful doing their research. I always tell clients now that search volume is down right now for home inspections. If you look in almost any market, and you type in home inspections in the Google, they actually on Google Trends, they’ll tell you the number of search terms and the density of searches and stuff like that lowest I’ve ever seen, and almost 20 years, but when you go back historically to right after the Great Recession, there was a spike in that because people were doing their research looking and thinking about hiring the right home inspector. Also, it’s not going to be the whole Hey, this inspection has to be done tomorrow, in an hour and a half period and I need the report, you know, two hours before you get there. Kind of rushing through things.

Beon DeNood: Yeah. So what we’ve been seeing the last two years where the markets been so hot that people have been skipping inspections because like you said, there’s like five, six buyers lined up for the same place. That trend seems to now be changing too. I mean it’s higher interest rates, higher prices so when people buy a house, they want to be sure this thing is right. So yes, they want it inspected and you know, one interesting thing, I don’t know, if you noticed the same thing with our users, now we’re seeing on inspector toolbelt, a higher amount of construction inspections, pre-drywall inspections. That wasn’t happening, you know, over the last year, year and a half, because people just wanted the house done, you know, they couldn’t walk away from the deal. So that trend is not going to make a boom quite yet for home inspectors, but it will keep you at a sustainable level, likely because you’re going to be seeing inspections where before that was being skipped. Now you’re going to be getting that business.

Ian R: Yeah, and there are a couple of other things that we forget to think about. Because we’ve been in such a hot market for so long. You know, 2020, it was just booming with buyers inspections but that’s kind of what created a little bit of this mess. If we go back even before that, on average about sometimes about a, I say sometimes that to go back and look at the exact numbers. I remember about a fifth of our inspections would be pre-listing inspections. It was even higher, right after the Great Recession. We have not done hardly any pre-listing inspections, because sellers don’t care. They’re like, Oh, who cares? I’ll just sell this turd on a stick and somebody will just come and buy it sight unseen, and it’s true, why would they get a pre-listing inspection. So we cut an entire sector of our market out. So let’s say it’s 1/10 of our inspections, or 1/5, or whatever it actually is, those are going to come back. Now you have sellers who need to present their house properly again, and a lot of buyers out there, they’re going to start doing pre-listing inspections, I need to fix everything. If I’m going to sell this, you know, I need to have that report to present that open houses and it’s going to bolster us up. We’ve always done really well as an industry when the economy hits the highest with the housing market rather. So when the housing market hits its highest, that’s when we do really well, on its way down to the buyer’s market. We do lousy, that’s been 2021 2022 Home Inspection companies are going out of business because, you know, there are 200 houses for sale in an area of 800,000 people, how are you going to sustain that business? Then when we hit right back down to the buyer’s market, we kill it. Those are the two sweet spots when it comes to home inspectors.

Beon DeNood: Now there is one thing we have to be careful of because, you know, we can look at, and this is my opinion, of course. You can look at the 2007-2009 recession and we can say okay, that time period, I’m assuming was brutal for home inspectors, right? It was a tough time business-wise.

Ian R: So I think there were a lot of knee-jerk reactions in that time period, a lot of my competition went out of business. I did great. I remember talking with a lot of guys. Oh, it was hard times. Okay, you know, that’s true but I know a lot of guys from that time period, that are like, hey, half my competition went out of business because they were just either not taking the inspection industry seriously. As soon as there was a little bit of a downturn, they jumped ship, or, you know what, they’re getting ready to retire anyway, and they saw the signals. You know, it’s like the stock market, people react emotionally. People react very emotionally to the economic downturn. I saw it as an opportunity. I put all my poles and all my rods in the lake to catch the fish when they finally came back. A lot of inspectors I know from that time period did well. So I’m probably ruining your point by that.

Beon DeNood: No, no, no, no, it’s I mean, it’s a point either way. So but then what I would estimate then is that, even if you did okay, during those years, 2010 and 2011 were probably really boom years for you.

Ian R: Oh, yeah. 2013 was one of our best years.

Beon DeNood: Yeah. Yeah. I think that’s, that’s the comparison that we gotta be a little careful of. My reason for saying that is, you know, we’ve come through a difficult time for home inspectors, generally speaking, like you say, some guys have said, well, I’ve been firemen in my market or whatever but generally speaking, it’s been a tough time for home inspectors to make it through. Now we’re coming out of the hot market into a time where, okay, maybe I’ll see I’m seeing the market pick up, I’m seeing more pre-inspections, and things are picking up. This is not 2010 or 2011, because we didn’t go through, the cause of the lack of Home Inspections wasn’t a recession. That’s why I think we got to, you know, we can be optimistic about you know, the rest of the year that we’ll be able to sustain good levels of business but my concern is that we’re looking at 2023 and economists are predicting the US economy is going to head into a recession. They’re about 60% certain about whether that’s going to have and that’s one reason I just think we got to kind of be a little tempered with looking at things because if that does happen, a housing market doesn’t necessarily just go down in a recession or go up. You know, it kind of does its own thing but it does push a lot of people, if there is a recession coming will push a lot of people out of the ability to afford the commitments that they’ve made, currently. It may also, you know, just affect any small business. So probably just a reason to be a little pessimistic about next year. I don’t know what your thoughts are.

Ian R: So I have to disagree with you just a little bit there. I mean, economists have been calling for a recession for the past 10 years, since the economy recovered from the last recession. Like every year, we’re heading into another recession. regimented, that one guy who predicted the last recession, he said it almost every year for the past seven years, if you say something long enough, and then I happen to like, See, I was right. So whether it has to recession or not, I think the point you made, it’s not equivalent to affecting the home inspection industry. So there are aspects that do affect it. Inflation is a big one, people with less money, but all that really does is changed the buyer set. So I did some math, I’m gonna actually partly prove your point and partly prove my point, there was a house that somebody wanted to buy, not far from me $180,000 3 years ago. So if you put no money down, and I just went on one of those mortgage calculators, no money down 3.5% interest on a 30-year fixed loan, it would have cost your family $1,191 per month. That’s not bad for most. I mean, that’s including taxes and your PMI and all that stuff. So that same home, though, is now worth $250,000 and I say that conservatively, even right now, as things are going down, you could probably still get more. So I’m saying 250. So an average rate of 5.5% cost that same family $1,910 per month, that’s almost an $800 difference, yeah. $719 To be exact, per month, that’s an extra $258,840 Over the span of the 30-year mortgage, that that family had to pay for the house. That I mean that’s a lot to add that on to the average family know, that average family, each dollar they have is only worth 80 cents, compared to three years ago because of inflation. So even if the house price stayed the same, say, the market goes down, and we’re like, Okay, now we’re back to the braces three years ago, and you still pay $180,000 for the house. Now it would be $1,405 per month, which is $77,000 over the life of a 30-year mortgage, and just interest for that same house from three years ago. For a family I mean, that’s, that’s a car payment as choose for their kids, that’s food. Again, $1 is only worth 80 cents on the dollar now, because of inflation. So what that does is it shifts the buyer pool. Somebody who was buying a $400,000 house three years ago is now buying that $250,000 house, and somebody who’s buying a $250,000 house is now trying to find a $150,000 fixer-upper. All it does is shift the buyer sets. So it’s sad for the American family but for home inspectors, it doesn’t affect our market, in my opinion. So I’m partly proving your point but I think spring of 2023 is going to be a great market for home inspectors. You know what? It is really hard out there right now I get calls all the time from guys. You know, nobody puts us on Facebook. Hey guys, I’m failing what some guys do. You know, or some guys say, Hey, I’m selling all my tools, you know, wants to buy my FLIR camera and all that, you know, or guys are just deciding to retire. I have guys call me “Ian, what am I doing wrong?” Like you’re not doing anything wrong. I’m looking on the MLS and you have 400 houses for sale and a market with you know, 600 inspectors? How can anybody do that? Now, in my opinion, 2023 is going to be a better year for us because there’s gonna be more inventory all that will get as a shift and buyer instead of having those buyers just disappear. That’s what people are worried about buyers disappearing. All you did was move people down from the price structure.

Beon DeNood: Yeah, that is interesting to think about, you know, and I think looking at, you know, so we say hypothetically, there’s a recession coming 2023. And it is interesting, because the indicators, I mean, usually you’re looking at overheated GDP and you know, saturated employment. Unemployment is right now at the lowest point that it’s been in years. So it’s typically indicators that you’re heading to an economy that’s going to contract and need a contract and that’s why the Fed is doing what they’re doing, right. They’re trying to slow things down. It also can contract a bit too fast and if it does, then obviously, the Fed’s job will be doing the opposite of what they’re doing now because they’re gonna want to stimulate the economy again. So interest rates come down. There’s a chance that if, if that does happen at any point, it’ll further accelerate what you were just describing because the people who have been pushed out of deals are still in a situation that they are likely not happy with. If they’re renting, and I’m agreeing with you now, so I support your point. This is boring, this has become boring to listen to.

Ian R: I win! I like winning.

Beon DeNood: Looking at, thinking of that family who, you know, I was looking for a house at the beginning of the pandemic. You know, they had, I don’t know, maybe they wanted to do it because their rent was accelerating, or because they were living in a place with a high cost of living, and they wanted to move somewhere where real estate was more affordable. So they were pushed out of the deal, for whatever reason, in the last couple of years, but that rent that was escalating with your consumer price index going through the roof, your next rent renewal is gonna go way up. So you know, they’re looking at, well, do I continue renting at crazy prices? What do I say, You know what, that interest rate is a lot higher than, you know, a couple of years ago, but it still represents more value for me as a family? So you know, we’ll see how it all plays out. Either way, one fact remains. If this at all tilts to become a buyers market again, and buyers are feeling happy, because consumer price, oh not consumer price, consumer confidence, the index is all saying “boo” but the reality is showing something else, people are still spending lots of money, look at the travel industry and everything it hasn’t slowed down. So if we see consumers still happy with their situation and spending money. What that does mean for home inspectors is if we turn to a buyer’s market, one thing we can be sure of is that buyers are going to be cautious with their purchases. If a buyer is more cautious with a purchase, a seller is a bit more desperate to get their home sold. That is always a good thing for home inspectors. So either way, it does look like things will start picking up.

Ian R: Yeah, and again, buyer’s markets, I used to love getting these calls, I’d go do a pre-listing on a house. Then I get called in to do the home inspection for the buyer. We’d always disclose to the buyer and have the seller sign off. If we actually did it, we actually had a little rule, you know, we’d wait a year, even though it’s not illegal in New York state, we’re like, Yeah, we’re gonna wait a year, we’d really don’t feel comfortable inspecting this for you, too. We don’t like to get those calls, because it just showed what the market was doing. You know, it was adding on buyer inspections, seller inspections, and 11th-month inspections. All the like you just said phase inspections earlier. Right now, we’re just scrambling hoping that somebody gets to the point where they actually want to go through with the buyer’s inspection and that we get it, there’s going to be a lot more out there. Also to foreclosures. So let’s go back to that imaginary family that got pushed out of that $180,000 house because it went up to 250 with interest rates of 5.5 The rents getting expensive, and people are people, we’re going to spend our money on what we really want. If that family in the apartment says Listen, this is expensive. They’re not going to let their life go by and say I’m not going to buy that house, they’re going to find a way to get it done. People are like listen, okay, we’re not going to have cable, and we’re going to put that away and save up for a down payment. You know what we’re going to do from two cars to one, people are going to spend what they want on things they want. So if they want that house, they’re gonna get it but now there’s going to be another opportunity again, and that is foreclosures. So according to realtor.com, there were 78,271 foreclosure filings in the US in the first quarter of the year. So doesn’t seem like a huge number, but that’s up 39% From the last quarter of 2021 and represented a 132% jump from a year ago. So foreclosures do a couple of things. They bring down the prices of houses and they also create opportunity, because not every foreclosure is a scary crack house with a fire in the kitchen. A lot of them are nice homes that people took care of. They just had to leave, they couldn’t afford it. So it also drops the prices of the houses in the market. So appraisers are like well, we don’t count the foreclosures as much but it does affect it if you can get a 1500 square foot house down the road for 80 grand on this foreclosure that affects the house-to-house price that’s $200,000, you know, quarter-mile the other way, other direction, and another house. So a lot of these houses create opportunities for people, you know what they’re gonna create TikTok videos of how they painted and plastered and, you know, put a new countertop and made that look like a gem again. We’re also gonna get a lot of investors too.

Beon DeNood: Yeah, it’s an interesting point, you know, because probably the most likely reason when seeing a big uptick. You’ll remember until I think it was July of 2021, there was a moratorium on foreclosures, just because of the whole pandemic. So when that was lifted, it obviously takes some time for the mortgage companies to process all the foreclosure, due process, and everything else. So I guess that’s why we’ve seen a big uptick in January, especially the first quarter of this year of foreclosures. But yeah, you’re right. It does, you know, create more gaps in the market like that. But it is an interesting statistic because we’re still dealing with the whole economic fallout from what we’ve gone through the last two years, which is fueled by the pandemic and a whole bunch of other things but it’s just interesting to see how it’s all playing out.

Ian R: Yeah. You know, foreclosures are kind of a funny thing. They never really just happen in a clean way. It’s an emotional process. Nick Gromicko, actually talked about foreclosures last week, or the week before when we interviewed him. He talked about how it’s a completely different generation. It actually struck a chord with me, you go back to 2007 if you were getting foreclosed on, those people fought tooth and nail, they sold everything they could do everything they could borrow money from friends and family and did everything they could to hang on to that house because that represented something. He brought up a point that I didn’t really think about a completely different generation now. People will tend to walk away from homes a lot faster. Oh, yeah. Okay. Yeah, go ahead and foreclose. I’ve actually kind of seen that attitude a little bit, you know, hey, things are expensive, you know, it’s, you know, you go buy hamburger meat and shoes for your kids, and then that’s your whole paycheck. Or like, okay, foreclose on the house. So that’s what it’s there for. It’s a completely different mentality. I’m not saying that everybody does getting foreclosed on as that mentality but I think we might just see generationally some of that gap there. He talked about his wife, Lena, she could just pack up and leave their house at any moment. You know, it’s a different generation different thought process about home.

Beon DeNood: Yeah, it’s interesting. I wonder if it’s generational or more like, overall economic pressure, you know, because, yeah, like, you know, thinking of like, 2007 through 2009. Basically, it was the big credit crisis, right, people basically bid off way more credit than what they could, you know, afford. So they were like, okay, yeah, we’re over committed, you know, they had to get out of it, they didn’t have a choice. Looking at it. Now, I think, families who really, really are having a hard time, everything has gotten more expensive. So if you’re looking at foreclosure, and the chance to get that bill off of your monthly, you know, obviously you’re gonna have to live somewhere, you know, so they’ll have to figure that out. It may be that, you know, getting that big chunk off of your payments, your bills every month, you know, is an attractive thing and maybe walk away from it easier, because they’re having a hard time across the board. I know, just a thought. I really don’t know. That’s just my opinion.

Beon DeNood: Yeah, no, timeline-wise, I think that that is quite realistic. I think why I mentioned the recession possibility is that if we did go into recession, it would probably change it from looking forward to a boom, to kind of just being okay, you know. So that’s I think the reason why I brought it up is that they are indicators in the market showing that it is likely. If that does happen, you know, you may just end up with a bit less active in the market as a whole but for home inspectors, I don’t think it’s going to be anything like what everybody’s been through the last couple of years with the hot market. It will be transitioning into a buyers market but the inventory of buyers themselves, if we did head into a heavy hard recession would be a little lower than what it would be without a recession. I think that’s probably the way that I’m looking at it.

Ian R: Well, yeah, I mean, that’s a good point. It’s, it’s a different reason for people getting foreclosed on. You know, it’s like, you know, I remember this one family, they got foreclosed on, but it’s like, okay, they at the time, they invested in a $30,000 pool, which we like 50 $60,000 now, and then they went on three vacations that year, none all the kids and even right, right up to the time that they were getting foreclosed on, hey, we got a new four-wheeler. It’s like, okay, not every family would like that, obviously, but just an extreme case. Now, it’s kind of like, okay, well, my paycheck was $1,000 last week, but now that paycheck is only worth $800 compared to what it was three years ago. Now I can’t afford this house. So it’s an interesting dynamic of why foreclosures may actually happen. Specifically for home inspectors, I mean, you know, a foreclosed house is a sad thing to see. I used to do just, I used to work for there was a real estate company that hire us to do the foreclosure inspections for the banks, we loved them. You know, they didn’t really want a full home inspection. It was just a few minutes and they paid, you know, a few 100 bucks and we do those and it was just basically the bank saying, Okay, this place is going to catch on fire while we sit on this for six months to work this out. There’s going to be opportunities like that that come up. Remember right after the Great Recession, the government actually started doing the US government. I’d actually don’t know about Canada with it anything like this, they actually did stimuli to encourage buyers to buy homes. My brother bought a home, and they subsidized his downpayment and gave him a tax credit like several $1,000. And he wasn’t buying a cheap house, he was buying a nice home. It was part of the first-time homebuyer stimulus plan. The government tends to do stuff like that, when they’re like, Okay, now has gotten far enough. So now you have all these foreclosed homes on the market. You have houses that, they’re not houses, by the way, I don’t think they’re going to go down in value a whole lot. I think there’s going to stagnate more than anything else, I think it’ll go down a little bit, but I think is going to stagnate more than anything else. Now you have homebuyers with stimulus checks, subsidies for their down payments, and all that great stuff. Now they have all these houses to choose from. I think it’s going to be hard times for the real estate agents but a great time for home inspectors. Matter of fact, going back to Nick Gromiko, he was just talking about that. He just posted about how this is going to be a great time for home inspectors. I and you were talking about that well before then I’m very optimistic that 2022 still going to be a rough rest of the year, it’s going to be a crazy ride. Spring 2023. That’s where I’m seeing it. I know you probably have a different thought on that.

Ian R: Yeah, I think a recession too, is more emotional than anything else. There’s some validity to what you’re saying. I say emotional because people may be afraid to buy a house. Oh, we’re in a recession. If you ask the average person to find a recession, I like to ask people that, like all, we’re entering a recession. What does that mean? Well, it means we’re entering a recession, and things will recede. Like, okay, so it’s an emotional response. It’s like when you see stock markets down, everyone’s like, Oh, my goodness, stock market? I’m like, do you have stocks? No. Like? What do you mean, then? What? What are you scared of? So maybe you could help us Beon because you’re smarter than me on these things. What does a recession basically mean?

Beon DeNood: Well, a recession, obviously, you know, if you’re looking at what leads up to a recession, well maybe can understand a bit more what a recession is and I’m by no means the senior expert on this topic. A recession basically means that your economy is contracting, the output of your economy is contracting, and unemployment goes higher. So looking at the situation where we’ve been at the moment with GDP, your gross domestic product, you know, what is goods that are being manufactured, exported, it’s been going up very healthily and very high, probably a little too fast over the past little while, where GDP has risen very, very high in the United States. Also, as I mentioned before, unemployment is at a very, very low level. So your market is saturated. When you’ve got more people employed, there’s more demands for services, more demand for goods, just simply because more people have money. If interest rates are kept too low, then people are buying like crazy and putting things on credit. All that hits their heads to a situation I guess they call an overheated economy in financial terms. The reason it’s overheated is that kind of pace cannot be sustained. Eventually. It’s a kind of like a bubble that’s gonna burst a little bit, you know, so, goods and services are not going to be able to be supplied, you know, people are not going to be able to meet all their debt commitments. Then what the Fed starts doing like they’re doing now is raising interest rates. So making it harder to spend money, because if you buy something, you’re going to be paying that much more interest businesses aren’t going to take on big loans because it’s going to cost that much more to do it. So they’re trying to kind of put the brakes on to slow things down to a point where they can be sustainable. If they do that, if it happens a bit too fast, then everybody pulls back, consumers pull back, businesses spend back, people get started getting laid off, so your unemployment rates start rising. The funny thing is, because of that contraction, there’s still less stuff available. So the prices of things continued to escalate but now wages are dropping, and the unemployment rate is rising. That’s when you head into a recession situation. So that I guess maybe that’s a very long definition but it’s the way I understand it anyway.

Ian R: I think you’re kind of making the point that I was thinking of it, it’s a balloon economy is a balloon that constantly needs to get bigger. The problem is you get an overexcited person blowing in that balloon and all of sudden it gets bigger and bigger, bigger, too fast. So the trick is to take a pin and just make a tiny hole and let the air release. It needs to contract a little bit.

Beon DeNood: You don’t have a lot of experience with balloons, I gather.

Ian R: No, apparently not trying to think maybe like a water balloon then.

Beon DeNood: Maybe just easing your grip a little bit and letting some air go out.

Ian R: So don’t put pins on balloons. When the economy blew up, everybody’s always comparing it to, you know, oh, the Great Recession. That is when everybody’s stood around the room watching the guy blow up the balloon-like a crazy man and saying, I’m good with this. Let’s see where this ends up and the balloon exploded. Then you had to like pick up the pieces and start over with a new balloon. That doesn’t happen with every recession. Most recessions are just like you said, letting the air out a little bit. Okay, guys, let’s back off a bit. A recession is an evil word since 2007. It’s not it’s not typically that bad. I still think there’ll be a recession. I’m not saying there’s not going to be but I think it’s much worse where we don’t have subprime mortgages. Well, we do to an extent the ARMS and there’s some stuff going on there. We don’t have subprime mortgages as we did before. We don’t have the heavy overloaded credit debt. We have a completely different situation and different reasons for it. Inflation, gas prices, and all sorts of things are affecting people.

Beon DeNood: Yeah, and I think those are the key points right now, you know because lenders are much more careful now than what they were back then. You know. So the lending market, the mortgage market is looking quite a lot safer than it was, let’s call it all those years ago but they are some deep underlying fundamentals in what we’re seeing at the moment, with the rising prices, the Consumer Price Index going up, is because I mean, pain at the pump. Oil is going up, gas prices are costing more, and delivery of services is costing more. So grocery stores, you see that going up, we even looking at, you know, basic commodities around the world, like, you know, wheat and grain products are getting a lot more expensive because of the war situation in eastern Europe. So, you know, a lot of these are fundamentals that we’ll have to see just how deep it goes, you know, and what effect it’s going to have on the US economy and the fallout because if goods continue rising and be less affordable, and people are going to be facing more unemployment and the wages being you know, cut from what they have got currently, then you are going to lead into a recession situation. There are a lot of questions that we don’t have at the moment but again, as far as the home inspection market goes, I think I feel the same way that you do we’ll see some instability going forward. Ultimately it’ll level out a bit more. I think that it has been the last couple of years. Then we’re gonna have to just wait and see you know, how things go, we could be heading for a boom or kind of just the same hoping that you know, we’re not heading into anything deep here with the world markets and the US market recession.

Ian R: Yeah. So some good points. We’ll see if our prediction sticks and again, just that legal disclaimers, growling at the bottom. We are not financial advisors or anything like that. We’re just a couple of guys kind of guessing and throwing spaghetti at the wall to see if it sticks.

Beon DeNood: Actually if you have a thought on this and an opinion on it, or the last you know series of episodes, we’ve done an app, please let us know [email protected] because we’d love to have your feedback and actually see what’s going on in your markets. You know, we’d love to know what you see happening because it’s amazing sometimes what different parts of the country this is completely different things happening. So we’d love to hear from you.

Ian R: Yeah, any of our listeners out there if you want to be on the show, grab a subject, particularly on this because this is what’s you know, affecting other inspectors out there, but we’d love to have you on and get your thoughts. Beon, it’s always great to have any on always fun, and hopefully, we’ll see if our predictions tick the next time we do this in the next quarter.

Beon DeNood: Yeah, we’ll see. Hopefully, we won’t be eating too much Humble Pie but yeah, thanks a lot, Ian. I think we’re more or less on track but thanks a lot. Yeah. I also was very impressed by your math this episode. I have to say that was just jaw-dropping.

Ian R: Well, I am terrible at math but fortunately, they have mortgage calculators online. That makes me sound smart.

Beon DeNood: Good. Hopefully, you didn’t give them your email address to get the calculations.

Ian R: No, but they have been calling me because of the extended warranty on my car.

Beon DeNood: Well, at least you had the math so we’re all good. Oh, thanks a lot Ian, I had a good time too. We’ll catch you next time.

Ian R: Same here. Bye

Outro: On behalf of myself, Ian, and the entire ITB team, thank you for listening to this episode of inspector toolbelt talk. We also love hearing your feedback, so please drop us a line at [email protected].

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