This will be a year of slow GDP growth (roughly 1.2 percent) and interest rates will stay in pretty tight range of where they are today. That was the big economic picture offered by the Mortgage Bankers Association CREF/Multifamily Housing Convention & Expo 2020 conference in San Diego.
According to Michael Frantantoni, MBA’s chief economist, the projected slowdown (GDP last year was 2.2 percent) is not surprising for an economy that has been so robust for so long. But there are so many more uncertainties this year.
“We’re starting from a remarkable place—the longest economic expansion on record,” said Frantantoni. “Economists are fond of saying expansions don’t die of old age, but we’re certainly at a place now where people are getting a little bit nervous. The last couple of years at this conference we were talking about which inning we were in. This is extra innings by far.”
Domestically, job demand and overtime hours have dropped and there is a leveling of wage growth. Internationally, there is the global manufacturing recession, the recent flareup in tensions with the Middle East, ongoing trade negotiations with China and, what Frantantoni called “one of the biggest uncertainties out there”: the Coronavirus.
China is expected to lose 2 percent GDP growth in 2002 due to the virus, Frantantoni said, but the impact on the global market is harder to predict. During the SARS epidemic, China was 4 percent of the global economy. Today it is 16 percent.
Indicators to Watch
Other key economic and demographic trends that will impact the multifamily lending business include:
- Fewer people. U.S. Fertility rates are at record lows. “Both organic growth and immigration figures are lower than expected,” he said.
- Changing Millennial preferences. Today, there are 4.7 million Millennials, many of which are expected to make different decisions about their housing as they become older.
- Downward trend in mobility. Fewer people are moving. There has been a big run-up in home values ($10 trillion gain in home equity), but homeowners are not rushing to sell.
- Consumers saving. While interest rates are low, consumers are not spending as much as people would expect since, Frantantoni noted, the personal savings rate today is 8 percent. Before the financial crisis, the average was 0 percent.
- Potential tax rate changes. If a Democratic becomes president, income taxes would rise. If President Trump stays in office, they would likely continue downward.
- Drop in business confidence. Many companies are waiting until after the election before making any large investments.
- Home building has not recovered. Residential construction starts were previously 2-3 percent of GDP. Now it is 1 percent.