When I was a kid I loved a TV show called The Beverly Hillbillies. It was about a family of hillbillies who struck oil, got rich and moved to Beverly Hills.
The family matriarch was Granny and she had a cure for the common cold that made the family’s banker (the greedy Mr. Drysdale) very excited b/c he thought he’d get rich selling it.
But the cure worked like this – cold sufferers drank her awful tasting medicine, and then got plenty of rest and lots of fluids, and in a week to ten days their colds got better – every time.
In other words, correlation was not causation.
I think of that story every time I read about recession predictions, as they have been surfacing everywhere lately.
RECESSION INDICATORS
According to this WSJ article, there are numerous indicators of a pending recession including:
Stock market sell-offs
An Inverted Yield Curve (short-term rates are higher than long-term rates)
Increasing Corporate Bond Yields
Negative Consumer Sentiment
Negative Business Sentiment
Increasing Initial Jobless Claims
Declining Industrial Production
Declining Aggregate Work Hours
Declining Retail Sales
Economist Surveys
So, is a recession coming? Most likely not – in the near term at least.
Economist surveys came up with only a 22% chance of a recession in the next 12 months. In addition, the article points out that we only need to worry when we see multiple indicators pointing to a recession, as opposed to just one or two. This week, recession fears were allayed by strong retail sales figures and rising oil prices, and the Dow had a record day as a result.
Back to The Beverly Hillbillies. Irrespective of the indicators and expert predictions, the only thing we know for sure is that a recession will come sooner or later.
So, here’s my prediction: we will experience a recession in the next two to seven years b/c my coffee is cold.
WHY RECESSIONS AREN’T SCARY
Lastly, a recession is not particularly scary in any case for many of us in the mortgage and real estate industries for several reasons:
(1) our industries are already in a recession; (2) rates will fall again when a recession hits, creating both refi and buying opportunities; and (3) the overall market remains huge and opportunities abound no matter what is happening in the aggregate.
Jay Voorhees is the Founder of JVM Lending. He specializes in mortgage rate movements, housing market trends, Fed policy, and refinancing strategy. Jay has 25+ years in mortgage banking and has personally originated over $1 billion in residential loans.
