Citing historically low long-term interest rates, declining manufacturing output and the United States’ ongoing trade war with China, the CEO of Keller Williams’ New York City franchise predicted a recession on the horizon during a monthly presentation to agents this week.
In conversation with Inman Friday, Mark Chin relayed details of his presentation, saying the biggest indicator remains the inversion of the yield curve, an economic indicator that signals long term interest rates are at a lower rate than short-term rates. Economists have insisted that while recessions are preceded by an inverted yield curve, a recession hasn’t followed every time the yield curve has inverted. Nonetheless, Chin believes its a strong data point.
“It’s predicted every recession for the last 50 years,” Chin said.
Meanwhile, Chin said manufacturing output, which has grown steadily over the past two years, has begun to trend downward. Earlier this year, real business investment hit negative annual growth for the first time in two years even as interest rates remain low and the stock market is stuttering, Chin added.
Add to those indicators, various “disturbing” scenarios including the United States’ ongoing trade war with China, the potential for a complete separation of the U.K. from the European Union and the potential collapse of a large, international banking institution and you have a recipe for disaster, Chin contends.
“The fact that interest rates are coming back down is a sign that people are betting against the economy,” he added. “There’s a lot of headwinds.”
“In the absence of all of those headwinds, I’d think, maybe [the inverted yield curve] is a false signal,” Chin added. “But if you take them in sum, with all of the other signals, I’d say we need to take this signal seriously.”
Chin doesn’t believe housing will be to blame like the last recession, but warning signs are cropping up in the housing sector, like the loosening of credit standards.
“People that five years ago couldn’t get a mortgage if their life depended on it can now get mortgages again, and that sort of thing is worrisome,” Chin said. “It isn’t as widespread as last time.”
At a recent Keller Williams family reunion, Chin said about 50 percent of the people he spoke with reported a shifting housing market, with prices and sales declining. Elsewhere, colleagues are seeing multiple bids and a hot but supply-constrained market, but even as recently as a year ago that was the case for 70 to 80 percent of the people with whom he spoke at the annual company event.
“The fact that half of the nation is starting to see some sort of retrenchment in their housing market is a fairly substantial point,” Chin said.
The last recession was catastrophic for the U.S. housing market, but Chin believes this won’t be anything close to that economic collapse in terms of sheer devastation.
“We don’t have the scale of the subprime mortgage volume that we did last time around,” Chin said. “And also we don’t have massive oversupply – that is a big issue.”
“Last time, we ended up choking on supply but this time around the builders never really caught up to demand,” Chin added. “That’s why in half the country, it’s still a seller’s market. Supply didn’t come up to meet the buyer’s demand.”