Signs of a slowing economy in the last few days appear to have taken Wall Street by surprise.
Those of us closer to Main Street would say they haven’t been paying attention.
Persistent unemployment and heavily indebted consumers have taken a toll on demand for months. That spells trouble with a national economy in which consumer spending accounts for 70 percent of activity.
On July 29, revised economic figures showed that first quarter growth was just 0.4 percent and the second quarter wasn’t much better at 1.3 percent GDP growth. Today, the Institute of Supply Management’s manufacturing index came in at a worse-than-expected 50.9 percent in July.
“Economy still going sideways,” said Wells Fargo Chief Economist John Silvia, noting that the economy is “just not gathering the momentum some analysts had forecast.”
My observations and conversations with bankers, and those close to bankers, suggest further slowing is all but inevitable.
In Washington, one thing is clear: Government spending will be scaled back even as the economy depends on it to offset weak consumer demand. Cutbacks at other levels of government are already taking a toll.
I spent part of last week attending the Inman Real Estate Connect conference in San Francisco. The annual gathering focuses on tech in the real estate business. But many speakers’ comments and observations signaled more economic trouble ahead.
A July 29 panel of economist-types on the outlook for residential real estate was sobering. The consensus was that we’re halfway through a decade of trouble for the housing market. Yes, that means we have five more years to go.
The always quotable Ken Rosen, chairman of the Fisher Center for Real Estate at U.C. Berkeley, was critical of those in Washington, who were busy threatening to send the nation into default and pondering measures to make home ownership in America even less attractive as he spoke.
“There’s no one thinking there,” Rosen said. “I’ve never seen so many dumb people working on housing policy in my life.”
He estimates a drop in conforming loan limits will affect 10 percent to 15 percent of Bay Area home buyers. Rosen, along with others attending the conference, noted the Bay Area’s housing market is stronger than most.
Another speaker at the Inman conference noted that consumer balance sheets are still laden with mortgages taken out during the housing bubble, creating a huge drag on consumer spending. Money paying off those loans curtails consumer demand amid the weak economy.
And another panelist said he found it “incomprehensible” that troubled home owners are paying on their credit cards while letting their mortgage payments lapse. In the new rules of personal finance, such behavior is logical.
The credit card issuer can impose higher rates and late charges immediately. Plus a credit card payment can boost cash flow since you can charge on the card after making a payment.
By contrast, the 4.5 million mortgage holders that are more than three payments behind might view a mortgage payment as going into a black hole, especially if the mortgage payment isn’t building home equity and the troubled borrower fears they’ll eventually lose the house to foreclosure anyway.
Other signs of economic trouble on the real estate front includes a July 31 report by Kenneth Harney in the Los Angeles Times that a growing number of home buyers nationwide appear to be more eager to fall out of contract as they worry about what lies ahead.
And bankers say that they’re not seeing businesses seeking loans because weak consumer demand doesn’t justify the risk and expense of expanding capacity. Plus these bankers complain that there’s a great deal of uncertainty created by new regulation.
That issue also arose at the Inman conference. A speaker said it might be a couple years before real estate agents once again can know “instinctively” whether a potential home buyer will qualify for a mortgage.
That doesn’t bode well for anyone.
Mark Calvey, bizjournals.com “Read Full Story”
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