With some homeowners still recovering from the Great Recession and the housing crash that decimated Nevada’s market, is the economy about to falter, threatening to plunge Nevadans underwater again?
The “R” word is punctuating news reports at an increasing rate. The Federal Reserve is expected to raise interest rates again. Corporations are perilously over-leveraged. And the bond market yield curve, historically an oracle of coming recessions, isn’t as curvy as it’s supposed to be — it’s flattened, indicating investors have more confidence in the short-term market than the long-term.
“Do I feel we have a recession coming? No, I don’t,” says Heidi Kasama, president of the Nevada Association of Realtors.
“Our fundamentals are different than when we had the big crash. Confidence in the economy is strong. Unemployment is low, and here in Southern Nevada we have lots of activity with construction of the Raiders’ stadium, the Fountainbleu, Resort World.”
The Realtors Associations reports some two-thirds of homes for sale in Southern Nevada are selling within 30 days of listing, and median prices are stable, despite an increase in inventories.
“The fundamentals of the market are still strong,” says Kasama, adding a recent lull in sales prices and increase in inventory is good for a market characterized lately by multiple offers and bidding wars on a scarcity of available properties.
“It’s a needed correction,” Kasama says of flat month-over-month sales prices in November. “It was just too hot. Buyers gave up. We have several buyers who just said ‘I’m not going to battle with these offers now.’ We were writing multiple offers, prices were going up and our agents couldn’t get the sale.”
“If everybody writes these scary stories about recession, it starts to be a self-fulfilling prophecy,” says Kasama. “Prices are up 13 percent year-to-year, so the market is hardly going awry.”
But with General Motors, Qualcomm, Anheuser Busch and others announcing layoffs, interest rates on the rise and uncertainty in financial markets, consumer confidence is already taking a hit, says Jeremy Aguero of Applied Analysis.
Consumer confidence has two components, according to Aguero.
“The first is the current situation index. That index essentially gauges whether consumers feel like they are better off today than they were 12 months ago,” he says. “The second is the future situation index. That gauges whether consumers feel like they will be better off in one year. While the present situation index is at something like an 18-year high, the future expectation index has flattened a bit. This suggest consumers are feeling like they are better off than they were a year ago, but are somewhat skeptical as to whether they will be better off a year from now.”
The University of Michigan, which tracks consumer sentiment, says the measure has hovered at 90 Index points for the past two years, a pattern not seen since 1997 to 2000.
Today it is at 97.5 and above expectations. Consumer confidence in the U.S. averaged reach an all time high of 111.40 Index Points in January of 2000 and a low of 51.70 Index Points in May of 1980.
The University of Michigan says consumer confidence is expected to remain at 97 for the next year and then settle to 86.70 by 2020.
Kasama expects activity in the post-holiday season will solidify the perception of a strong, stable market.
America is enjoying one of the “greatest housing booms in United States history,” according to Robert Shiller, who created the S&P/CoreLogic/Case-Shiller National Home Price Index. Shiller predicts the current boom, which began in February 2012, is the third largest in history, with prices rising 53 percent so far since the 2012 bottom.
The largest boom, which began in 1997 and ended in 2006 with a 74 percent increase in prices, ended disastrously in 2006 and was followed by the Great Recession.
“Those market conditions are gone. We don’t have those loans anyone could get or investors with no skin in the game,” says Kasama.
New York-based investment giant BlackRock predicts a recession is unlikely in the coming year.
“Yet the odds are set to rise steadily thereafter with a cumulative probability of more than 50% that recession strikes by 2021,” reports Fortune.
“On the housing front, the bond market is underscoring an increased perception of risk on the horizon,” says Las Vegas economic consultant John Restrepo of RCG Economics.
“It’s unclear, however, that a recession is coming in 2019 or even early-2020. The data trends indicate that housing is in position to gain from the move to market shelter by investors to 10-year Treasuries, since the yield is extremely related to mortgage interest rates.”
Home affordability is keeping young and first-time buyers renewing their leases for another year and waiting on the sidelines for a break in prices, says Kasama. The trend is hurting home builders. The National Association of Home Builders/Wells Fargo Housing Market Index dropped 8 points in November to 60, the lowest it’s been since August of 2016. In 2015, the index stood at 69.
“Builders report that they continue to see signs of consumer demand for new homes but that customers are taking a pause due to concerns over rising interest rates and home prices,” said NAHB Chairman Randy Noel.
Demand remains high for one segment of the market – entry-level homes priced at $250,000 or less.
“Some of the new home builders are bringing that product out in the North and Northwest,” Kasama says of the lower-priced units. “It’s becoming an issue across the nation.”