For the first nine years growing out of the disaster of 2008, we had weak economies but ended each year with experts predicting wild success in the year ahead. We ended last year and started this year with an economy hitting full stride, and yet we are heading into 2019 with investors freaking out.
Our economy grew slowly and steadily out of the near-full economic collapse in 2008. Each time we started running and fueling hope that the pre-2008 days of wildness were right around the corner, we’d be scared back into our bunkers by instability around the world.
In 2014 it was bad weather, then ISIS, then Russia invading Crimea. We got low oil prices and reports of slower growth in China in 2015. In 2016 we were held captive by a presidential election — oh, and then Great Britain decided to leave the EU. Then finally, last year, we started getting used to our new bold and unpredictable president and the economy was humming.
We started this year in what economists said was a “full-stride,” meaning, we were operating at full productive-capacity. We had almost everyone employed, and we were getting near-maximum productivity from them.
Our economy ran strong all year. The Federal Reserve promised more rate-increases. Then, all of a sudden, investors freaked out and the stock market started convulsing. The reasons for the volatility are not totally clear. If they were, there probably wouldn’t be so much volatility.
Investors are certainly concerned about our trade war with China. When good news comes out about it, the market does well. When unclear or bad news comes out, it doesn’t.
But the most consistent theme I’m hearing is that investors are concerned that we are simply due for a recession. Things have been too good for too long.
That theme has been in the back of investors’ minds for most of the year. And they have been playing musical chairs with their money: investing with one hand, while having the other hand ready to yank it out as soon as the music stops. Increased tariffs both here and abroad have started to show their effects in the way of increased raw materials to build the goods we produce and decreased profits from the sale of some of those goods overseas.
The housing industry is certainly showing weakness. It’s burned out from years of overstimulation where the Federal Reserve helped drive down interest rates to encourage people to buy the houses. The real estate industry makes up over 15 percent of the U.S. economy and it carried the responsibility of keeping our economy alive after the recession. Demand for housing has been far ahead of supply, so naturally prices have risen in most markets at least 5 percent per year for the last eight years.
It’s well known that people on average buy a new house once every 7 to 10 years. If you bought a house 7 to 10 years ago, the more expensive houses you and your family will look to move up to don’t look all that much different than the house you are in. So maybe you are staying put and remodeling. If you finally got rid of your children and want to downsize, you’re likely to pay a lot more for a lot less than what you have.
So many buyers have been sitting on the sidelines. As a result, home values are finally starting to stagnate and houses are sitting on the market longer. Homeowner’s are finally taking less than asking price. The market has been so very hot the last eight years, maybe it is just in need of a cooling down period.
It’s always hard to tell where things are headed. It’s too big of a world and there are too many players. The good news is that our growth has been slow and steady. Companies are having trouble hiring people right now because of a historic low unemployment. So one would think they are operating lean and mean. Home values went up because the solid market principles of supply and demand, as opposed to people just paying whatever banks would give them a loan for. It just seems like we don’t have a long way to fall if things do get bad. It’s easier to imagine a stall, than a fall.
And maybe, just maybe, whereas in year’s past we’ve started the new year predicting wild success only to see something pop up and rain on the parade, this year, with everyone feigning caution, we’ll see things take off.
Geoff Smith is a mortgage banker with Assurance Financial focusing on residential home loans for refinances and home purchases.
*The views and opinions expressed in this column do not necessarily reflect the views of Assurance Financial Group