2020 ECONOMIC UPDATE
CONFIDENCE AND CAPITAL
CONFIDENCE & CAPITAL 2020 ECONOMIC UPDATE
M
Consumer Confidence is the most critical component to the decisions any
economists
consumers watching
have and
waiting
and
that ultimately determine the
businesses and consumers (including
been
course of our economy.
home buyers) can borrow are near their
for
all-time lows. 30-year fixed mortgage
the next recession. Meanwhile, in the
rates in particular are again back near
background, the U.S. economy has
the lows experienced intra-year in 2012
remained composed, quietly growing by nearly 50% since 2009 ($14.4 trillion GDP in 2009 to $21.4 trillion GDP in 2019). Whether it’s an individual looking to purchase a home (either a primary home or a second/vacation home), or a business considering an expansion, the critical factors to the decisions that drive economic growth remain very consistent. These decision makers
need
a
cash/equity
down
payment, they need access to debt financing, and they need the confidence that a purchase or expansion will be supported
by
continued
economic
strength. Specifically, home buyers need confidence that they will remain employed,
and
businesses
need
confidence that an investment will be met with higher demand. As we remove the noise and examine the factual data, we feel as though these three critical components for continued economic growth, as well as for continued housing strength, remain firmly intact: Confidence, equity/cash strength, and mortgage affordability. Allow me to expand on each of these elements in greater detail:
Equity/Cash First, high-yield savings accounts are now returning between 1.85% and 2% annually, versus less than 1% for most of the period since 2009. Second, the U.S. equity markets are at all-time highs; the major domestic indexes experienced record growth in 2019 (S&P 500 +29%, Nasdaq Composite +35%, Dow Jones Industrial Average +22%). Over a longer period, the S&P 500 is up over 150% since 2008 and just had its second-best year over that period. Finally, 401(k) and IRA account balances have grown at an even higher rate given this underlying growth. When also taking into account increased rates of contribution, the average 401(k) balance since 2009 has grown by over 400%. Simply put, most major purchases (and specifically down payments) are sourced from a combination of savings accounts and qualified/unqualified investment accounts; each of these sources of liquidity are at unprecedented high levels, on average. Interest Rates The average interest rate at which
and 2016, currently averaging 3.49% as of January 31st, 2020. Consumer Confidence With the backdrop of available liquidity and financing, Consumer Confidence is, in fact, the most critical component to the decisions that ultimately determine the course of our economy. Consumer Confidence ended 2019 at its highest point since 2001 at a reading of 127 (the higher the reading, the higher the degree of optimism regarding the growth prospects for the U.S. economy). While somewhat circular, despite distractions and other unknowns, Confidence is essentially attributable to very low unemployment, low interest rates, low inflation, increased wages, and strong equity markets. Housing The three economic drivers above, paired with very low unemployment, historically high job growth, significant wage growth and low inflation (while balanced
somewhat
with
concerns
regarding affordability) have directly fueled the strength we are experiencing within the housing market. While low
While low mortgage rates
mortgage rates are certainly a very strong factor in the current market, nearly every other
are certainly a very strong
driver of home sales and new construction (including dramatic sustained growth in demand;
factor in the current market,
single family permits have risen for seven consecutive months) also remain positive moving into 2020.
nearly every other driver of home sales and new construction also remain positive moving into 2020.
Concerns Contrasted with these strengths, many unknowns remain as potential disruptors. To briefly touch on two issues of late, 1. It remains unclear if the U.S. and China can come to terms on a trade deal that will ultimately have a direct impact on manufacturing and our economy at large, and 2. Although political tensions are certainly high, it remains ambiguous as to whether partisan infighting will weigh on Consumer Confidence (previous elections have not typically shifted the direction of the economy, and in fact they have often provided a boost to the economy as the election unfolds and unknowns are eliminated). Among others, the impact of a potential Chinese trade war, the outcome of tensions in the Middle East and a looming presidential election have the potential to modify our trajectory. With that said, we feel as though a wholesale reversal in direction is unlikely as the facts currently stand. Summary Politics, stores going out of business, fear, illness, weather, criminals, and the lottery all make the news, yet the economy is unruffled. These hot buttons, while constantly capturing our attention, have less of an impact on growth, and on the housing market, than one might imagine. While questions remain to be answered during 2020 and bumps along the way are a relative certainty, the economic outlook is positive. Based on strong equity markets, high
Steven Kirby Executive Vice President, Financial Officer
Consumer Confidence and available debt, we are optimistic that the expansion will push on while the U.S. economy continues to grow in 2020. In conclusion, we feel it prudent to take advantage of sustained opportunities for personal growth by leveraging economic strength, all while preparing for change along the way. Here’s to an amazing 2020!
U.S. Statistics
2017
2018
2019
Unemployment Rate
4.34%
3.89%
3.66%
Inflation Rate
2.13%
2.49%
1.78%
Economic Growth Rate (in GDP)
2.3%
3.1%
2.3%
Average 30-Year Mortgage Rate
3.99%
4.55%
3.66%
CONSUMER CONFIDENCE
UP 202%
SINCE 2009
The life you love.
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