Layups, Layoffs, and a Lehman Moment
I am a life long basketball fan and still play regularly in my now old age. It has always been a fact that a “layup” is the highest percentage shot taken in the game. It seems the more you get of them in a game, the chances of your success in winning is way greater.
If you are trying to predict the direction of events in 2023, you may say it is a layup to predict a recession coming. Layoffs have started to be announced, corporate earnings expectations are being reduced and the Federal Reserve continues to crank up the pain with ever higher short term interest rates.
The U.S. economy can handle some or even all of the these events and adjust to a slower but positive move forward. But most cycles have unexpected events that can make that impossible. We have already had an energy shock (remember $5 gas?) and gas prices look to go higher again. And then there’s corporate bankruptcy - FTX is a major one.
2023 and into 2024 are going to have some twists and turns for sure. Some we already know and some we haven’t heard of yet.
I believe we will have some mini credit crisis moments later this year and into next (remember Lehman Brothers in 2008?) as the fallout continues from pandemic policies that pulled a great deal of demand for goods and services forward. Credit got way too easy this cycle and a lot of firms will need to refinance their debt at much higher rates.
And let’s not overlook the possibility that a political event will also shake things up a bit.
If history is correct, housing looks to have a 15-20% correction in price that is already underway. That is the silver lining in the economic challenges I see ahead. It isn’t what you sell something for…it’s what you paid for it. And what you will pay for housing/shelter/rent over the next 18 months will be a lot less.
You should see that silver lining every time you see a for sale sign in a yard as it will be there a bit longer this year.
True financing costs are also part of that equation and I believe fixed mortgage rates will revisit their highs of nearly 7% before coming down later this year and into 2024 along with inflation. If I am right, we will also see the return of lower price adjustable rate mortgages that could ease housing financing costs as well but don’t expect that until early next year.
These are my predictions going forward into the New Year and how it looks to me.
If moving is in your future, I’m here to help you navigate the mortgage market.