I can’t do New Year’s predictions.
It takes enough arrogance to write about markets and economics, but predict the future? In the words of Peter Drucker, America’s best-ever business thinker: “Nobody can predict the future — the idea is a firm grasp of the present.”
That said, it is possible to evaluate probabilities, to bracket the range of likely outcomes. And from there to identify the most important stuff, and just as critically, the issues that aren’t important and therefore not worth our time. Keeping our minds free of peripheral things helps to keep the mind clear.
So, here it goes.
1. The most important thing for 2016 (arguably for any year) is your local market and its trends and conditions
If you’re reading this, you’re likely a housing professional, and that’s why No. 1 should be at the top of your mind.
Focus! Drive away all national blather. Within in your market, three things will determine your year ahead: local population gain or loss (especially migration in or out), your local supply of land (less is best) and your local economy.
2. Housing again, but not so important: interest rates
Yeah, I know, we live or die with rates, but the local factors in No. 1 are more important.
The Fed is on the march, and short-term rates will rise (home equity lines of credit, the London interbank offered rates, prime, adjustable-rate mortgages) but the march is going to be an ultra-slow stroll, mortgages likely to stay in the fours. Every week in 2016 I’ll post a piece here on rates and their shifting outlook.
3. Politics will matter — overseas
Over there, much less so here, politics and economics are the same. Europe is hopelessly entangled in the awful political decision to adopt the euro, and its economy will stay stuck until it drops the euro. China’s efforts to reform itself into a more modern economy have failed and will continue to fail, and maintaining growth there will require predatory trade slowing everyone else.
The entire emerging world will struggle to adapt politically to far slower growth than anticipated. Ghoulish, but good for us: a slow world will keep inflation and interest rates low.
Burlingham / Shutterstock.com
4. Politics won’t matter here
We will have this election thingy in just 10 months plus a week (calendar accident: the latest possible Election Day, November 8).
U.S. elections rarely have an impact on housing or financial markets. This time, two aspects might: first, a Republican president and Republican Congress could produce surprises both happy and not-so happy.
But the prospect of unified government is unlikely, not so much because of the Republican candidates, but because we seem to prefer divided government. The second possibility: the campaigns might politicize the Fed, which will be rate-hiking all year. A politicized Fed would be messy. And the Fed will tighten in an election year if it thinks it should (’80, ’92, ’04, etc.)
5. ISIS and terrorism
Not important — not for us, not professionally. Of course, read, study, consider as much as you wish, but it is highly unlikely that terrorism here or over there will affect the sale of home listings next year. Some of your clients will be anxious, of course, but the economic linkage is not present.
Oil wells image via Shutterstock.
6. The geopolitical issue that does matter
Oil. No, I have no idea where the price may go, or even over what range. However, the longer it stays under $60 per barrel, the greater the risk of broken crockery.
Oil markets since the beginning have suffered with chronic oversupply, and now we’re in a suicidal spiral. (“I must pump because I need the money, but every barrel I pump brings less money, so I have to pump more.”)
Producer discipline is rare and fleeting (see OPEC, the Texas Railroad Commission). The only hope for discipline is oil prices falling so far that a lot of producers go bust, so badly bust that they can’t begin production again for quite a while.
Today, marginal production is already shut: tar sands, deep water, some frackers. But the chicken race is accelerating toward a wreck with the weakest in the lead: Venezuela, Nigeria, Russia and overspending sheikdoms. Even post-wreck, they are not going to stop producing (bankrupt corporations will), but odds are high that in 2016, one or more will enter political instability.
7. Back to housing
Despite the local market advice above, one overwhelming national trend is that the young are having a hard time.
Their incomes not rising, eaten alive by student debt and healthcare expense. We see the result in new construction with an ocean of multifamily properties, mostly rental — not for-purchase — and single-family homes still at recession levels. We need the young!
8. The best youth indicator next year: household formation
In hard times we double-up or move home. Household sizes are rising but the numbers remain flat. In good times we get to spread out. It’s the single best thing that can happen to housing prices, construction and inventory. Spread out, young people!
9. Technology and housing … first warning
The news media is in a painful process of adapting to a collapse in advertising revenue. One of the losing adaptations is the proliferating plague of no-content content. Everywhere, click-magnet headlines but no real stories. More in 2016! Save your time (and your mind): find and stick with high-level content sources.
10. Technology and housing … second warning
Don’t get hooked on technology. Don’t text and drive, and don’t mix tech-candy with business. We have magnificent tools today, with the virtual tour maybe at the top — no wonder 152 percent of homebuyers shop for homes on the Web.
However, there is no substitute for personal relationships (virtual is OK if real), and no other way to demonstrate skill. Which is what we deserve to be paid for.
Happy New Year!
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.
