I would love to see a very comprehensive “bear case” for housing based on data.
Specifically for SoCal and San Diego.
Imagine there is a recession, what would be the key factors which would impact housing:
1. how high would unemployment go?
2. would there be another lending/banking crisis?
3. what would vacancy rates be?
4. how much would prices decline?
5. how much would incomes drop?
6. how many businesses would close up/ never to return?
7. what would trigger a recession
In my personal view, many recessions were directly related to energy prices in the 1970s/early 1980s. Even the 1990-01 recession was partly related to Gulf War 1.
In my opinion, the 2002 recession was a combination of 9/11 and the tech bubble bursting. If it had only been one of those two, then perhaps it would have been more regional. Much like Texas in 1986-87 oil industry or Michigan in 1981-82 (auto industry).
I lived through both of those and while it seemed dramatic at the time, within a few years Texas had recovered. Michigan took longer but that was partly due to the complex and unproductive relationships between automakers and unions at the time. I think it is different now.
I can see the tech “bubble” deflating some, but the profits of the Googles today are much more stable than back in 2000 with the dot com bust.
With fracking and OPEC capacity, I don’t see energy being a problem in the next 3 years, beyond that perhaps prices will rise but EVs may then play a greater role.
Perhaps if Putin/ISIS/Assad/Iran/Hezbollah all decide to live together in peace than we may see another “peace dividend” for those who remember that phase from the 90s, that would impact defense spending and thus San Diego. But again doesn’t seem likely in the next few years, in fact, after the DT was in Saudi, it made me think about getting back into that business.
Alas, a slightly weaker dollar is helping the manufacturing company I work for with our international exports, nice to see foreign customers paying a touch faster when the currency works in their favor. A strengthening dollar would be a headwind but likely not enough to cause a recession. Yes, SoCal still has manufacturing believe it or not.
If the DT admin gets it’s way, perhaps some of the govt biotech spending will go down, but there seems to be pretty strong resistance to that, so give this a low probability for now.
In my sober assessment, I still think there is too much demand pent up to see excess supply being a problem. More likely, blue color labor wages won’t rise fast enough to keep housing affordable (not saying anything new here).
So for now, I see the cycle just kind of sputtering out as people get bored and realize there is more to life than how much the house appreciated last month/this year. It will be a healthy thing if we all kind of move on and let real estate be boring for a while. Just black and white numbers on a spreadsheet with reasonable down payments.
For my friends who think of buying, my concluding is basically, be sure when you buy that you will actually make/save money in a non-speculative way. I.e. assume perhaps 2-3% appreciation. If things go down, be prepared to ride it out.
The ones who lost the most in the last downturn were those with funny mortgages and those who took money out.
