Discussing a huge survey of economists on home prices and when they see a recession occurring, how to prevent the next bank crisis, is the Fed out of touch with most Americans plus good news from the Richmond Fed…
Next Recession to Begin in 2020
The quarterly survey, sponsored by Zillow and conducted by Pulsenomics LLC, asked more than 100 real estate experts and economists about their predictions for the housing market, including when the next recession would begin and what could trigger it.
Overall, nearly half of all the experts surveyed expect the next recession to begin sometime in 2020, with Q1 being the most commonly selected quarter. More than half of the survey respondents pointed to monetary policy as the likeliest cause.
The current economic expansion is the second longest in American history, and will be the longest ever recorded if the panelists’ predictions hold true. The housing market collapse led to the Great Recession, but few experts – just nine of the respondents – think the housing market will be at the center of the next downturn.
The Federal Reserve’s decisions about U.S. monetary policy will be the main factor in the next recession, according to the surveyed experts. By most measures, the economy is doing well – GDP is growing steadily, and unemployment is near historic lows. This has prompted the Federal Reserve to raise short-term interest rates four times since the start of 2017, with two more rate hikes expected this year. There are roughly even odds for a third hike before the end of 2018, but raising rates too quickly could push the economy toward slower growth, leading toward a recession.
Some would say that forewarned is forearmed but this is not good at all. While the economy has recovered in many ways, things still are not as good for ALL Americans as we want.
Check out the chart showing when those surveyed think the next recession will occur:
It is interesting that the majority are saying that monetary policy will be the cause. I am sure this will be ignored or called fake news by some…
The good news is that most of the economists do not think the housing market will be at the center of the next downturn. They are expecting home prices to increase 5.5% in 2018, 4.1% in 2019, 2.9% in 2020, 2.6% in 2021 and 2.8% in 2022.
Check out this chart showing their expectations:
You will notice that despite their prediction of a recession, they are not predicting that home prices will fall. They are saying that the pace of home price increases will slow.
Zillow senior economist Aaron Terrazas said:
As we close in on the longest economic expansion this country has ever seen, meaningfully higher interest rates should eventually slow the frenetic pace of home value appreciation that we have seen over the past few years, a welcome respite for would-be buyers. Housing affordability is a critical issue in nearly every market across the country, and while much remains unknown about the precise path of the U.S. economy in the years ahead, another housing market crisis is unlikely to be a central protagonist in the next nationwide downturn.
Pulsenomics founder, Terry Loebs said:
Constrained home supply, persistent demand, very low unemployment, and steady economic growth have given a jolt to the near-term outlook for U.S. home prices. These conditions are overshadowing concerns that mortgage rate increases expected this year might quash the appetite of prospective home buyers.
There is no doubt that rising mortgage rates is a serious concern BUT as of today, they are still historically low. The bigger concern for housing is the lack of homes for sale in many areas of the country in my opinion.
Housing Confidence Hits Lowest Point in Over 2 Years
High home prices, unaffordability cause confidence in housing health to drop to lowest levels in nine quarters since inception of ValueInsured’s Modern Homebuyer Survey.
The desire to own a home remains high, currently at 79 percent among non-homeowners, however; 67 percent believe the American housing market is unhealthy, according to the latest ValueInsured quarterly Modern Homebuyer Survey. In addition, the number of people who believe buying a home today is a secure and smart investment dropped to 52 percent. Despite reports of a strong sellers’ market, the decline in confidence is significant across the board among homeowners and non-homeowners alike.
Joe Melendez, CEO and founder of ValueInsured, said:
Housing confidence – as do home prices – goes up and down, but what’s noteworthy now is the decline among homeowners, in particular millennials. Many are stuck in homes they have outgrown and cannot upgrade, which explains the inventory shortage we see at the starter-home level.
This is a pivotal time with rising prices and rates weighing heavily on consumers. Flat to declining home sales volume indicates sellers and buyers are not exactly jumping in with both feet. More of them could be moved off the sidelines if perceived security and confidence in home buying could be restored.
Ouch! I would say that consumers are being too pessimistic despite the prediction of a recession in the Pulsenomic survey.
Regulate Bank Behavior Not Capital to Prevent Next Crisis
From American Banker:
Policymakers should spend more time focused on limiting risky activity through measures like the Volcker Rule than on demanding ever-higher levels of bank capital.
The failure of more than half of the large U.S. banks by assets in 2008 had nothing to do with capital, but everything to do with confidence. When we accept that confidence in banks is more a function of the behavior of bankers than the accumulation of capital, then we will have a system of prudential regulation that is effective and supported by investors and the public.
Very interesting stuff. If we saw bank executives going to prison with hardened criminals, we would see a huge shift in the behavior of banks…
Federal Reserve Out of Touch With Reality?
Check out this quote from Federal Reserve Board Governor Lael Brainard in the press release for a survey about the economic well being of Americans:
This year’s survey finds that rising levels of employment are translating into improved financial conditions for many but not all Americans, with one third now reporting they are living comfortably and another 40 percent reporting they are doing ok financially. Even with the improvement in financial outlook, however, 40 percent still say they cannot cover a $400 emergency expense, or would do so by borrowing or selling something.
If the economy and labor market is so healthy, why would the Fed’s own survey show that 40% cannot handle a $400 emergency?
The problem with some politicians and policy makers is that they are so far removed from the hardships faced by many Americans. They cannot see or do not understand what many people are going through.
Or they do not care since they know these people will not be making large campaign contributions…
Fifth District Service Sector Firms Reported Strong Growth in May
From Richmond Fed:
The Fifth District’s service sector expanded robustly in May, according to the results of the latest survey by the Federal Reserve Bank of Richmond. Most measures of service sector growth increased, with the revenues index jumping from 2 in April to 11 in May. Survey results also reflected increased demand and an improvement in local business conditions, and firms were optimistic that these trends would continue in the coming months.
The employment and wages metrics increased further into positive territory, but a decline in the availability of skills measure (to −9 from 0) suggest that firms had more difficulty finding workers. Firms expect these dynamics to persist in coming months.
Prices paid by services firms grew at a higher rate, on average, in May. However, prices received increased at a slightly slower pace. Firms expected to see growth for both prices paid and received to accelerate in the next six months.
Good news for the economy in our area as we are in the Fifth District. And that is not all of the good news from the Richmond Fed…
Fifth District Manufacturing Firms Reported Robust Growth in May
From Richmond Fed:
Fifth District manufacturing firms saw robust growth in May, according to survey results from the Federal Reserve Bank of Richmond. The composite index swung from −3 in April to 16 in May, boosted by growth in the indexes for shipments, new orders, and employment. Local business conditions also moved back into expansionary territory, after weakening in April, and firms remained optimistic that growth would continue in coming months.
Survey results indicate that both employment and wages rose among manufacturing firms in May, however, firms still struggled to find the skills they needed. They expect this struggle to continue in the next six months and also expect employment and wages to increase further.
Many manufacturing firms continued to increase spending in May. The growth rate of prices paid continued to rise, on average, but firms seemed able to pass some of change through to customers, as prices received also grew at a faster rate.
Excellent news other than the increase in prices and the continued difficulty in finding skilled workers.
Well that is all I have time for today! Be sure to hit those share buttons and subscribe so you never miss another post! And as always, if you have any questions about selling or buying real estate in the Anderson SC area, Contact Me!