Market Opinions, everyone has one!
An excerpt from an article by Steve Carvelli with notes by yours truly Keith Hadding
Now, with stock market “corrections” , higher interest rates, lower transaction volume, and a toxic political climate, I think it’s time for all real estate professionals to look up and pay attention to these road signs.
These road signs indicate caution--and possible trouble for the economy.
As I mentioned and referenced before, we have experienced growth and expansion for over seven years. Many newer agents have never seen a national market recession. Stock market is up since the Inauguration. Unemployment near record lows. What this means for a humming economy is this--INFLATION. Inflation is a prime focus of monetary policy.
If we compare a strong economy to a roaring jet engine--to prevent it from overheating--the Federal Reserve raises rates--to control internally generated inflation--and cool the economy. The key here is--too many rate increases can stall the economy--too few may mean higher inflation and can result economy pullback too.
The fly in the ointment here is the unemployment rate. It’s low--really low by some standards. This creates the possibility of wage generated inflation. Fewer workers available means higher wages for the same work, and employed workers can demand higher wages since replacements are not readily available. The robotic revolution may change the dynamics of this in the near future--but, for now, it remains a concern.
So where does that leave us. It’s going to be the best of times and the worst of times. If the consumer gets spooked by these happenings--they will rein in spending and consolidate and preserve their finances. This will exacerbate the pull back effect. OR..They may see buying opportunities in the dip and jump in the housing market. But higher rates--mean higher borrowing costs for individuals and corporations and this forces re-evaluations in equity and investment positions.
So as you can see--it’s a mixed lunch bag--only time will tell which trend will persevere
We also need to consider that the numbers can be somewhat skewed as we learned to measure unemployment differently in the Obama era. A great deal of people who gave up on looking for work or those under employed are no longer in those numbers so as I said somewhat skewed. Add to that a decline in immigration and flow of illegal traffic and I would suggest a slightly different picture of unemployment.
In fact from my vantage point I would suggest there is a bigger issue here and that is it appears that some jobs are struggling more to get filled than others. general labor, fast food restaurants, delivery persons etc. these seem to be the positions that are not being filled quite as quickly. I'll leave it to you to argue as to why?
Steve is right about inflation however it has been an ongoing issue for some time. Have you been to the grocery store lately. Compare butter from 1 or 2 years ago, eggs, milk, bread, and the list goes on. Storms, fires, earth quakes, all take a toll on supply which will add to the inflation. Here in the Carolina's we are seeing that as well. Florence came and soon after Michael and the materials are spread thin, the emergency people spread thin, and still plenty of recovery needed.
So in my opinion I am not so worried about the economy moving forward. The slow down in production of home building during the bubble burst is still being felt as the mom and pop spec builders have not returned, leaves many markets in short supply which will tend to hold the values up.
Steve is correct that I do expect to see a rise or should I say continued rise in intere
st rates. those that get off the fence today are going to be very happy with that decision. However I have sold homes in markets where rates were as high as 16-18% and people still need housing then as well. they tend to buy smaller. I see this as a forward trend with many spec builders doing smaller sf homes.
Well that's the market news for this week, please feel free to add your opinions.