Almost everyone anticipates a recession. But if everyone believes a recession is coming, why aren’t we compensating for it yet? Or are we? We keep telling ourselves this time it will be different than what we’ve experienced in the past.

This time, multiple economic, cultural and geopolitical factors will come into play. One of those factors is, of course, the COVID-19 pandemic. Trillions of dollars were pumped into the economy to counteract the effects of the pandemic and shutdown. Excess cash and pent-up demand led to mass consumption. This  and other factors caused the high inflation that’s become more persistent than the transitory inflation initially attributed to supply chain issues.

From what we’ve learned from the history of business cycles, we know what goes up must eventually come down. It’s a matter of when and how hard. Some argue the United States already has slipped into a recession. Others say it’s bound to happen soon. Still others believe a a recession won’t occur for some time.

The reason we’re not compensating for an upcoming recession is we don’t know what’s coming. Although there are no straight answers for exactly when or how hard, we can still base predictions on past events and present conditions.

This time, there’s still strong labor demand, low unemployment and high levels of savings and liquidity in the economy. People still have money to spend. Given that 70 percent of economic activity is based on consumption, a recession will only occur when consumption slows. 

There are multiple ways this can occur — adjustments to spending, unforeseen events and other economic forces. 

The increase in interest rates has lowered consumer confidence and slowed the residential real estate market. In the late 1970s and early 1980s, the Federal Reserve raised interest rates repeatedly to curb inflation. Eventually, the interest rate for a 30-year mortgage topped 20 percent. Although interest rates remain historically low, there’s no guarantee this won’t happen again.

Geopolitical forces also affect the economy, especially war. That includes the Russian invasion of Ukraine and the threat of that conflict spreading.

During World War II, trillions of dollars were spent on the war effort. Consumption and inflation increased and an economic downturn followed. But in our case, trillions of dollars were placed into the hands of consumers, and the money is still circulating. 

The good news for the real estate market is this money needs a place to go. Real estate investments serve as a hedge against inflation. 

There’s still high demand for quality real estate and high purchasing power, which compresses the capitalization rates used to measure the return on commercial real estate.Not until interest rates equal or go above cap rates will cap rates increase and values decrease. We’ve also seen recent declines in stock markets, which could lose further ground. If that happens, some of that money will come out of stocks and go into real estate.

We believe we’re due for an economic reset, but hopefully not for another 12 months to 18 months. The scary part about making a prediction is nobody can truly know what will happen or when.

Even the news about the spread of monkeypox in the U.S. could affect the economy. The war in Ukraine could drag on for years. 

All the factors that keep us from going into a recession right now will be the same factors that will help us come out of a recession, if not lessen the effects.

If a major economic downturn does take place,  it will be a result of unforeseen events. Otherwise, we would have compensated for it before it occurred.

Sid Squirrell, a Certified Commercial Investment Member, is a broker associate with Bray Commercial in Grand Junction. Hannah Croasdell, a recent Colorado Mesa University graduate, works as his assistant. For additional information, call 241-2909 or visit the website at www.braycommercial.com.