There is another old adage about the “world’s oldest profession”. It is that “sex work is recession proof.” This was apparently true for millennia, but now, the dynamics have changed. A series of articles have looked at the history and evidence. Here are some thoughts, and why now is not the time to buy real estate.
A closer look at Sex Work as an Economic Bellwether
To say that sex work is recession proof is to equate it with other businesses that are recession-proof or resilient, like utilities, say, or breakfast cereal. That may have been true during an age when sex work was largely defined as prostitution. But today, it is much more complex than that. Sex work today incorporates everything from erotica writing to domination, to sensual massage, to chat and phone sex, to content creation, pole dancing, and so on. It is a far richer landscape. This richness, however, has meant that broadly speaking, the industry has become more sensitive to the economic cycles.
Here is an article that explores the theme further.
Conclusion: don’t buy real estate right now.
Of course, there are people who have to buy now for one personal reason or another, but for the rest of us, acting out of economic choice rather than necessity, the clouds on the horizon are considerably darker than they were even three months ago.
Chief reason among these is the war of aggression in Ukraine. We have only begun to see the effects of this. I lamented in a previous post about how the West wouldn’t care about Ukraine. I see faint shoots of hope, but the level of caring is not where it needs to be. If the West does not stand up to Russian aggression (and one could argue that they felt emboldened to attack Ukraine precisely because their previous land grabs in Georgia and Ukraine met with only hand-wringing—the gesture of the impotent), they will see no reason not to go further (eg. chemical weapons, threats of nuclear, new states at risk, greater levels of civilian atrocities, more attacks on the basic infrastructure of life—like drinking water treatment facilities).
The War of Aggression in Ukraine is having an enormous impact on energy prices (inflationary), food supplies (humanitarian and inflationary), and geopolitical. The only good news is that war means making weapons, and 40% of the US economy, much of the French and British economies, and Italian economy are dependent on the sale of weapons and weapons systems. That means jobs. The feelgood factor is dead.
Plus, inflationary pressure is now very real. That means we all feel poorer. What happens then? Voters vote for the other side. That is likely to mean Trump or his proxies in the US. Love him or hate him, you know what he does/does not do with the courts, issues akin to bigotry and human rights, and where this leads us. In an article in the weekend edition published on 18 June, 2022 of the Financial Times, the UK’s leading financial newspaper, and quite possibly the most serious English language newspaper in the world, the US mid-term elections this coming fall are likely to be a rout for the Democrats—meaning two years of gridlock in the run up to an election currently thought to be a rematch between Trump and Biden.
We feel the pinch at the pump. We feel the pinch in supermarkets when every product that uses grain is getting more expensive, and many others. Wages have not kept up with housing costs for decades, so anyone who was not on the property ladder may be forever shut out, and most can no longer afford to move. Add to the mix rising interest rates designed to reduce inflationary pressure and you have the makings of a perfect storm.
What would I do if I were considering making a real estate investment in Europe, the UK, or the US?
I would sit tight. Wait until the Fall. The spring and summer are traditionally the best times to sell, prices are at their highest, but we are already seeing substantial downward revisions in property prices, projections, and transaction volumes. Depending on what happens next, this could turn into a rout or into a blip.
Nightmare scenarios?
Something as simple as war grinding on in Ukraine could be enough to continue to drive long-term economic pain. The disruptions to both the energy markets and grain markets are very real. But it could get a lot worse than that. The conflict could spread.
China might also see that the West is only providing equivocal support for Ukraine, and that now is therefore their best chance to take Taiwan by force. An ongoing struggle with the pandemic is raising discontent about Communist Party leadership and that of President Xi. History is littered with examples of leaders who used war to drum up support for continued rule. This could get ugly.
“Milder” outcomes could have equally shocking consequences. Leaving out the politics of the ruler, a rightward/populist lurch in US politics could rekindle the undermining of domestic institutions, checks and balances, law and order. The overturning of Roe v. Wade is a very big step in that direction. US Civil War is less farfetched than it seems. We came perilously close to a coup at the last election. Rule with such disdain for the institutions could wreak permanent damage to the US as a nation state:
- Under Trump, many pundits think the US might pull out of NATO—great for Russia, horrible for Europe. Horrible for the economy of the largest economic bloc in the world. Horrible therefore for any economy that sells lots of goods and services into the world’s largest market—the rest of us.
- Uncertainty about US economic stability and institutional stability could undermine the dollar as the world’s global reserve currency. Economists estimate that as much as 20% of the greenback’s value is derived entirely from its status as a reserve currency. The euro, sterling, swiss franc, yen, and yuan would all benefit from a shift to their own currencies being used as strategic currencies. Seriously downward pressure on the dollar would be catastrophic for the US as the world’s largest debtor nation, just as interest rates are rising—and thereby crimping the country’s ability to repay.
- Whether these things actually happen is already having an effect–because in uncertain times people start to think about them…and that can already take its toll.
The inflation–interest rate–real estate cycle
Mostly we understand that as interest rates go up, mortgage prices go up, making holding a mortgage less affordable. The good news is that somewhere between 70-90% of UK and US mortgages are on fixed rates. That means that even as interest rates go up, at least for a while, the impact will not be felt. Even though indebtedness throughout the developed world is at an all time high, fully 80% of this debt is tied to a mortgage…so most folks are “safe”.
Inflation, however, does make us poorer on a day-to-day basis. Everything gets more expensive, and prices rise faster than wages, so we feel the pinch. And while inflation gradually erodes the value of the debt we hold, this is something too gradual to counterbalance the feeling that we have less money to cover costs when inflation is high.
And to keep things under control, interest rates are going to keep going up. Maybe quite a bit. Who does that hurt most? People coming into the housing market for the first time. People needing to move or change home. With first time buyers making up close to a third of all purchasers, this is a substantial chunk of the market that is going to feel the pinch–and that could very well translate into a big drop in demand in certain segments of the housing market.
Another thought? 20% of real estate transactions in the housing market are for people who are landlords–they are buying the property to rent out as an investment. Landlords are more sensitive than homeowners to mortgage costs, because they have to balance cash flow out and cash flow in, and are not making the decision based on anything so woolly as “I want to live here.” Between these two markets (and these two classes of buyers are competing in the same market), there is a correlated risk. That means that 50% of the buyers out there today could be feeling the pinch.
This article in the FT highlights some of these points.
Anecdotal Evidence
As an active real estate investor, what I see is a notable pickup in supply between Q4 2021 and now. I also see an increase in the number of days listed on average for any property. And I also see sellers slashing prices. This may be in the market that I have taken a recent interest in, but I suspect that it is more broad-based. Be careful.
Seasonality Matters
it has long been said that Spring is the best time to sell–the weather has turned, everything starts to look beautiful again, and Spring Fever is a real phenomenon. They also say that late Fall and early Winter are the best times to buy…for the opposite reasons. Given the storm clouds on the horizon and the observed shifts in trend, it would be wise to wait for the fall, to accumulate cash as much as you are able–if for nothing else than to provide yourself some breathing room.
What do you do?
Most of these effects take place above our pay grade. These are things that most of us have no influence over. All we can do is be good economic actors, stewards of our own financial well-being.
What does that mean practically? Crap, I would love to have one year of my running costs in liquid form—cash or cash equivalents. At least until I see that it is safe to come out again. But I am like most people, I spend every penny I have—and even then, it’s never enough. I know that is the reality for almost everyone. But in the meantime, be prudent.
And if you know a sex worker, make sure to ask her/him what s/he thinks is going on. Do they see any difference? It just may be that the oldest profession in the world has just become the wisest.
Beyond Non-Binary 