We are already in the aftershock recession...

The real estate market in Southeastern Michigan has slowed as rising prices and lack of available inventory sent many would-be buyers to the sidelines as the year winds down. See the attached report from our broker, Dan Elsea -

http://reofamilymarketing.com/wp-content/uploads/2018/10/Bro_HousingReport_Q3_2018_REO_Dynamic.pdf

There is an inclination to just attribute this slowdown to a normal seasonal pattern; however, I believe that we actually seeing the leading edge of the next recession. There are other subtle indicators in the retail markets and elsewhere that reinforce my "gut feel" that what we are seeing right now is the quiet before the storm of another recessionary period.

The Wall Street gang would like us to believe that the recent volubility and drop in the market is just an "adjustment"; but I think it is more of a pullback by people made cautious by the last recession. Many people are starting to hunker down in anticipation of a few years of the pain of this recession.

I would compare this recession to an aftershock following a major earthquake. We had the major quake in the so-called "Great Recession" of  December 2007 to June 2009. At the end of that period there was an attempt to "return to normal", fueled by a Wall Street Rally that was based largely on great expectations. Stocks rallied and there was an expectation that wages would soon follow them up. That did not happen. Employment when up, but the jobs were mainly part time and lower paying that before the Great Recession.

In fact, the Great Recession was the final death knell of the Middle Class working man - the union workers who, with overtime, could afford the bigger houses and the toys that went with the Middle Class lifestyle. Wall Street used the downturn and the changes in political power that occurred in Washington at about the same time to emasculate the unions and decimate the working Middle Class. The rich got richer at the upper end and more of the middle class was pushed down to join the poor at the bottom.

So this "aftershock" recession is actually the a reflection of the reality of people's lives finally matching their circumstances, rather than being fueled by the credit-driven optimism that Wall Street was pushing. The Wall Street band was playing "Happy Days are Here Again" and encouraging people to spend, spend, spend with credit in the hope that wages would rise and allow that credit to be paid off. Didn't happen! Not going to happen. The realization that a raise is not forthcoming is settling in and the valves of the credit-fueled recovery are being cranked shut.

Add to that the likely mid-term shift in the political environment in Washington and you have the classic ingredients for a recession. The good news is that the credit overhang in the general population (especially in real estate) is not quite as bad this time and the measures taken after the Great Recession have strengthened our financial system and positioned it better to ride this one out without bailouts.

That recession also took America down a notch in the order of things in the world. At the same time China was on the rise and India was awakening as an economic power. America is still the only "great power"; just maybe not as great in relative terms as before. That s another new reality that most have not yet figured out how to deal with for the future.

So, remember that you read it here. We have already entered the "aftershock recession" of 2018. How long this will last and how deep the "adjustment" will be are yet to be determined. I don't think it will be as long or as bad as the Great Recession; which I believe should be renamed "The Great Reset", because it did cause a wholesale reset of the economic and social structure of America.

I'll see you on the other side.

What would Steinbeck write about today?

When I was in college I did a paper on “Grapes of Wrath” by John Steinbeck. Steinbeck wrote the award winning novel in 1939 as a chronicle of the great struggles suffered during the dust bowl days of the Great Depression. The conventional wisdom was that Steinbeck meant the novel primarily as a social commentary about the conditions of the times. That was what the college professor that I had at the time expected to get back in the papers that she assigned,

What I wrote about was the use of the times as a vehicle for Steinbeck to write about the ability of people to survive and persevere in times of great hardship. I got an “A” on that paper for seeing the novel in a whole different light, perhaps one that even Steinbeck didn’t realize as he penned it (although I really believe that he did).

I wonder what Steinbeck would right about today. I’ll bet he would find another award winning novel in the hardships being suffered today by the displaced homeless. He wouldn’t have a bunch of hard scramble sharecroppers to use; but, I’ll bet he could find plenty of material within the families of the laid off auto worker, or the struggling middle class family whose mom just lost her job and the family can’t afford the house payments any more. These are our generation’s “Joads”.

And just like the Joad family in Steinbeck’s novel, our modern families will find a way to survive. They may have lost the family home, but they will find a place to land and eventually they will find new work and a way back. The fact is that we, as a people, have great resiliency. We also have great compassion and a willingness to help each other out. So, even though we are currently in what some are calling the worst recession since the Great Depression, we will find a way to survive.

As Little Orphan Annie always says, “The Sun’ll come out tomorrow.” And, we’ll still be there. And, that’s the important thing. We will persevere. I still think some writer should do a story about the trials of those displaced by foreclosure in this recession. There is a powerful story there somewhere; or to paraphrase the tag line from an old TV show, "There're a million stories in a foreclosed city."

P.S. I just couldn't help myself when I found this graphic. There's just too much cynic left in me. Where's Little Mary Sunshine when I need her?

The second wave...

I am by nature a bit pessimistic - a trait that both my wife and my upbeat manager are trying hard to get me to change. I've posted several times here about making 2008 a more optimistic and upbeat year for myself and I must admit that going into each day with a positive outlook has helped. I'm off to a reasonably good start to the year and have lots of good, positive things going on right now. However, I'm also starting to see a rather disturbing second wave of real estate problems develop that portends some rough times ahead in the market.

What I'm seeing now are not the sub-prime borrowers getting into trouble and losing their homes to foreclosure, but rather the prime-rate people starting to struggle. It doesn't take a whole lot to tip a highly leveraged society like ours into a recession and that has already happened. The combination of way higher energy prices and the ripple affect that has had throughout our economy and the current real estate driven credit crunch have put a lot of stress on ordinary people who were not in trouble a few months ago. Little things like overtime going down or a company bonus not being paid this year or a spouse getting laid off or going part-time can tip the balance between being OK and being in trouble and I'm seeing that all too often lately.

I'm reading articles written by learned economists that predict that this will be a "shallow" recession, but that it may last a while longer than normal. The unreported issue may turn out to be that very few of us are in a position financially to ride out a recession, no matter now shallow it may be. It has been well reported that Americans don't save enough, so there is little cushion in the bank to ride out the storm. That is what is driving the second wave of housing woes that I see on the horizon. If the housing market weren't already in the tank, many might have used the equity in their homes to ride this recession out. Now, many are discovering that their houses are worth less than what they owe on them. The piggy bank is empty.

So, all of a sudden Joe Average citizen, who was not some sort of sub-prime deadbeat, is in trouble with his mortgage, too. This could shape up to be the perfect storm in the real estate market and leave us awash in foreclosures. I certainly hope not. I hope that is just pessimism coming through again. I hope. And hope springs eternal. Let's all sing a chorus of "The sun'll come out tomorrow!" Where's my happy face when I need it?