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  • George Heredia

Is 2020 Boom or Bust?

I read a HousingWire article yesterday stating that homebuilding will drive GDP growth to make a recession-proof economy in 2020.


Seriously?

It is businesses and innovations that fuel GDP growth, not the homebuilding sector. That area is dependent on jobs, purchasing power, house affordability, low interest rates, and government programs that assist first time buyers get a home. You can't buy or keep a house if you are not employed. Just building homes does not guarantee anyone will buy them. There isn't a real "if you build it they will come" scenario.

But what is happening behind the scenes?

In spite of glowing praise from the government on a booming economy and job growth, the cracks are starting to show. And appraisers are once again getting a first hand look into this, which I will explain in a moment.

Let’s look at job numbers.

Celadon Trucking just shut down abruptly causing 4,000 employees to be suddenly out of work, many stranded throughout the U.S. with revoked fuel cards, and unable to even get back home. Cummings, the largest manufacturer of truck engines located in Texas, will lay off 2,000 employees in January.

Boeing also announced completely shutting down production of the 737 Max, and leaving 400 of those aircraft permanently grounded. While no lay offs have been announced, it will not come as a surprise in early 2020 that Boeing will cut jobs to stave losses.

Other lay offs announced include Deere, Haliburton, Textron Aviation, Daimler, Volvo and Caterpillar. All are expected to add thousands to the unemployed ranks.

Since 2018 Wells Fargo has cut 26,500 jobs, Verizon around 44,000 jobs, and Deutsche Bank another 18,000 jobs (in New York and London).

With every job cut from large employers there is a ripple down effect that eliminates more than 10 other jobs: the donut shop owner, the office paper supplier, the local restaurants, and more.

Manufacturing is actually on the decline (see graph by the Bureau of Labor Statistics). This can be a result of tariffs or loss of export markets, or less worldwide demand for goods.

Loss of jobs will not help in the new home buying sector in 2020. Construction in spite of local jobs will only create an oversupply in many home markets, further eroding values.

Appraisers are already seeing the effects of this downward spiral, bubble burst or whatever it will be called. We are seeing markets with little or no pricing increases, and in some markets of Dallas-Fort Worth even pricing reductions from a year ago. We are seeing longer marketing times, listing price reductions, and additional concessions in order to sell homes. We are also seeing an upward spike in foreclosures and default valuations.

Will new housing construction be enough to grow the economy? We will soon find out.



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