Special Report: “Is a Recession Coming, or Are We Talking Ourselves Into One?”
Monday, September 30th, 2019
Fortune magazine recently asked the question, “Is a recession coming – or are we talking ourselves into one?”
According to economists who visited South Carolina on Thursday, the answer is no – and no. Not any time soon, at least.
“In terms of the overall economy, we’re pretty optimistic,” said Mark Vitner, managing director and chief economist with Wells Fargo Securities LLC. Vitner and Dr. Robert Dietz, chief economist and senior vice president for economics and housing policy with the National Association of Home Builders, spoke at the Midlands Real Estate Forecast conference at the Columbia Metropolitan Convention Center.
Vitner pegs the odds of a recession at only 15% this year and 30% in 2020-21.
“I’d be wary of 2022,” he said.
Dietz said the NAHB forecasts economic growth of 2.3% this year, 1.9% in 2020 and 1.5% in 2021. He said a labor shortage is impacting growth.
“In the construction industry, we’ve been facing that for quite a while,” Dietz said. “It’s throughout the entire economy.”
He said some of it has to do with the large numbers of baby boomers leaving the workforce.
“We’re going to have to work our way through some of the demographic pressures,” Dietz said.
In South Carolina, Vitner said, gross domestic product is positive but lower than in neighboring Florida, Georgia, North Carolina and Tennessee. From cars to tires to Boeing jets, the Palmetto State is connected to a slowing global economy, but continues to grow for other reasons.
“We’re attracting lots of folks,” Vitner said. “York County is the third-fastest-growing large county in the United States.”
Dietz pointed out that South Carolina’s population is growing twice as fast as the nation as a whole. He saw one negative national trend that could impact the state.
“A lot of the declines in single-family home building have been in manufacturing areas,” Dietz said.
Nationally, Dietz expects housing starts to be down 2% for 2019 and up 2% in 2020-21. He expects 30-year fixed mortgage rates to rise, but said, “I don’t think we’re going to get to the 5% of last fall.”
According to July data from the S.C. Realtors Association, home sales were up 3.8 percent compared to July 2018. The median price – $220,000 – was up 10%.
So far in 2019, there have been 52,936 sales of residential homes, condominiums and villas, up 1.2% compared to the same period in 2018. The median price is up 6.1 percent and homes are spending an average of 87 days on the market, compared to 88 for the same period in 2018.
The size of new homes will continue to shrink across the nation, according to Dietz.
“Townhouse construction was up 15% in 2018,” he said.
That doesn’t mean to expect a boom in the kinds of low-priced starter homes the market is hungry for. Dietz chalks that up to regulatory pressures.
“We’ve made it so expensive to build homes and develop land that it’s impossible to build those homes,” he said.
Regulators could also spell the end to the current economic expansion, which has set records for longevity.
“It’s typically when the Federal Reserve makes a mistake and ends the cycle,” Dietz said. He said the Fed raised interest rates too quickly in 2018.
Both Dietz and Vitner employed a phrase popular with many economists – expansions don’t die of old age. Vitner added that people don’t die of old age either.
“They die from things that happen in old age,” he said. “Recessions are caused by the buildup of excesses during the good times.”
He said one unique aspect of the current expansion is the lack of excess.
“We didn’t overbuy cars, we didn’t overbuy TVs, we didn’t overbuy boats,” Vitner said. Even commercial construction has been conservative with the advent of the virtual office.
But with all the talk of potential recession, can consumers inadvertently wish it upon themselves?
“Folks realize it’s been a long time since the last recession,” Vitner said, but added, “you typically don’t know you’re in a recession until it’s almost over.”
Dietz said that despite rising uncertainty, market psychology isn’t the strongest force on the economy.
“We have to look at all these other economic variables, and they’re all solid,” he said.
The forecast event was sponsored by Building Industry Association of Central South Carolina, Columbia Chamber of Commerce, Central Carolina Realtors Association, and Mortgage Lenders Association of Greater Columbia.