Data showing a potentially weak economy?

Question

This article presents different datapoints and graphs to consider when thinking about the future of the economy.

https://www.biggerpockets.com/blog/gdi-weakness-paints-picture-of-a-weaker-economy-than-we-think?utm_source=Iterable&utm_medium=email&utm_campaign=Newsletter%20%7C%2012/07/23

A couple of the reasons I am a bit more bearish on the future of the economy and the housing market. The main points the article highlights are one the difference in the GDP and GDI numbers and secondly the U.S. personal saving rate and how it correlates to home sales.

GDI has fallen dramatically and is showing a larger spread between GDP. In theory GDP and GDI are supposed to be equal to each other, this discrepancy in numbers could potentially mean a couple of things. Companies are increasing their own profit margins while keeping employee wages relatively the same. It also insinuates weaker job creation and lower wages, as companies have smaller and smaller budgets to provide employees. The positive GDP suggest consumer spending is at a healthy level, the problem with this however is with the lower GDI this isn’t sustainable for long.

The low saving rates corroborates with all of this. The U.S. personal savings rate has been reported at 3.92% (Avg of the last 23 months) meaning after taxes and personal spending people are only saving 3.92% of their income. The last time the rate was below 4% was during the financial crisis of 2008. Consumers are having lower and lower savings, I think even with a drop in interest rates we won’t see as big of a flurry for new home buyers as what some people are claiming.

Sources:

https://apps.bea.gov/iTable/?reqid=19&step=2&isuri=1&categories=survey&_gl=1*1ywdb5a*_ga*NDEzMjU5MjUxLjE3MDMzNjE3MjQ.*_ga_J4698JNNFT*MTcwMzM2MTcyMy4xLjEuMTcwMzM2MTk1My40My4wLjA.#eyJhcHBpZCI6MTksInN0ZXBzIjpbMSwyLDNdLCJkYXRhIjpbWyJjYXRlZ29yaWVzIiwiU3VydmV5Il0sWyJOSVBBX1RhYmxlX0xpc3QiLCIzMTYiXV19

https://apps.bea.gov/iTable/?reqid=19&step=3&isuri=1&1921=survey&1903=76&_gl=1*1g241j8*_ga*NDEzMjU5MjUxLjE3MDMzNjE3MjQ.*_ga_J4698JNNFT*MTcwMzU3MTQwNS4zLjAuMTcwMzU3MTQwNS42MC4wLjA.

V.G Jason · Answer

It's clear as day we are at inflection point. Super high debt, super low savings, a terrible oil price, and some massive sector-specific layoffs. The chickens haven't come home to roost, but there'll absolutely be some trouble in the near term. I don't think for long or that harsh, but people love to look at the last few months and say things are great. That doesn't mean anything for the next few months.

I stand by the view we'll see unemployment rise to near 5%, as rates come south of 6% and supply comes on in the housing market. We'll also see the real dip of the economy after the first pivot.

Carlos Ptriawan · Answer

The fact that Fed officially changing their position in 30 days just means they are in panic mode.GDP consensus of 2024 is less than 1 and that's recession mode.

Carlos Ptriawan · Answer

ya and all of you guys money are coming from us ( tech guy that has 400K per HH income ) LOL so we would see how this money flow changes thing, we are still in very very early of long massive adjustment.

i remember during the hyperinflation era of 98 in Asia, it took 6-8 years to recover, not fully recovered, there're of course generational changes, for example, home ownership can only be done by baby boomers, and it's just impossible to buy house even if one making 100k. We are the latst generation of landlord here in california lol

V.G Jason · Answer

I think we're going to see wages outpace inflation here in 2024, and rents come up as home prices come down. Before we see that, I think we'll get a rough patch. Right now lack of wage inflation for the upper part of the economy is stalling things, the local ice cream guy can go from $12 to $18 very quickly, but the white collar tech guy goes from $180k to losing job.

Nicholas L. · Answer

OK. What's the "so what"?

Karl B. · Answer

100%. Inflation is killing most Americans and it will get worse if our government keeps printing money and failing to balance a budget (2001 was the last time the Federal Budget was balanced - total failure).

A lot of my tenants have halfway decent jobs but many don't have savings. It's shocking. One couple are each managers for two different companies and paid late a few months ago due to an unforeseen expense. They're back to paying on time but it gives me the impression they don't have much savings.

A few tenants have paid late due to delays in receiving payments from their job which also leads me to believe they're living paycheck to paycheck. And I'm primarily a C-class property owner and roughly 80% of my properties have rents under $700 per month.

My main market has super low inventory and a lot of local investors are sitting on cash, waiting. Some have taken equity out of their properties and are ready to spend the cash on new deals.

One aspect that interests me is a lot of commercial debt is coming due in 2024 and 2025 which means a lot of these commercial owners (including apartment buildings) will need to refinance at much higher rates and some of them will be forced to sell or turn in the keys as the refinanced interest rate will eat all of their cashflow and then some.

The residential space is so unappealing in my market (again, low inventory and inflated prices) that I'm looking forward to commercial opportunities. Of our commercial properties we sold the majority of them over the past few years (resulting in us paying off all our commercial debt) and are likely holding on to the two crown jewels of our portfolio unless someone wants to offer us stupid money for either of them. Both are large industrial warehouse complexes. We also have a 'home base' commercial property which we run another business out of and will definitely keep.

Opportunity is going to continue to show itself - the tough part is timing it so it's always good to be ready while also looking for other deals in the meantime.

Chris Seveney · Answer

@Josh Sidhu

I agree. Most Americans live paycheck to paycheck and while inflation is not as rampant, it is still outpacing wages. We are also seeing a lot of car repos and credit card defaults. Homes of course always take much longer and have significant lag time. I am not seeing 2024 as a banner year for the economy

J. Mitchell Bernier · Answer

This shows up to in the BTFP numbers the FED reports. Just this month it has grown another 20%, which means that Banks are still seeing liquidity issues. Also, manufacturing and agriculture outlook is looking rough and couple that with a slowing Chinese economy as well....

But its an election year, so probably will just kick the can down the road one more time.

Carlos Ptriawan · Answer

meant to say upward social mobility is almost impossible unless one is having rich parent.

Data showing a potentially weak economy?

Data showing a potentially weak economy?

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