Every year as we step, or stumble, from one year into the next, it is customary for economists, analysts, pundits, and mere mortals to give us their valued (or not) opinions as to what the New Year portends. Being one among those listed above (pick one), I feel an obligation — no, a duty — to express mine here.
With a virtual plethora of articles appearing in 2014 throughout the “regular” media, the blogosphere, and various other venues regarding the strength or weakness in our economy, one could surmise that there is a clear trend. My “crystal ball” tells me that, yes, there is a trend, and it is not a positive one.
There have been countless articles pointing to the continued “recovery” of America’s housing market and the improving health of our economy. However, in nearly equal numbers there are articles aplenty highlighting signs of continued weakness in meaningful job growth, potential downturns in the housing sector and on Wall Street, the potential impact of a worldwide oil glut, global recessions and other calamities (man-made and otherwise), that lead many to believe 2015 will be another lackluster year for American economic growth. I am among them.
One of the most insightful articles I have read in this regard recently was co-authored by Jacob Gaffney and Trey Garrison, which was published in the December issue of HousingWire Magazine, titled “Crunch time.” This insightful, carefully crafted piece touches on global economies, our continued “employment conundrum,” the Federal Reserve “spigot,” called Quantitative Easing, obstacles for first-time buyers, and the pluses and minuses of home price appreciation, among other fascinating points.
The bottom line of that article (for me), is that without the creation of more meaningful, full-time jobs and their typically accompanying higher wages for the hard-working middle-class citizens of this country, who are the figurative and literal backbone of this great nation, the future does not look any brighter in 2015 than it turned out to be in 2014.
Consider this: One of the most striking elements of our “improved” unemployment numbers is the known fact surrounding how much labor participation fell during the recent protracted recession. Many millions of Americans are no longer counted as among the “unemployed,” as a result of either becoming discouraged about finding meaningful work or they simply stopped looking because their existence is being subsidized by various government programs.
This will most assuredly continue on well into and beyond 2015. This is easy for me to predict, given the total lack of leadership and intestinal fortitude of those who have been elected to serve the American people.
And, in terms of the housing sector, lenders are not so willing to loosen lending standards as announced by Fannie Mae and Freddie Mac regarding 97% loan products, because they do not want to lend to people who have FICO scores below 640. And for good reason, as it has been proven over time that too many of those individuals whose credit scores are below 600 are at higher risk to default on their loans – even their mortgages. They are not bad people; they simply have less earning power or access to capital and cannot survive any hiccup in their monthly or sometimes weekly income.
Repurchases of mortgages were at historic levels over the past several years, costing traditional lenders billions of dollars that cut deeply into their bottom lines. Would you rather lend your money to someone you were confident could pay you back, or someone who may be a higher risk of defaulting?
Even though there is another push by federal agencies to have banks lend to more and more low-income homebuyers, most lenders are choosing not to do so, with the notable exceptions of lenders like ditech and 360 Mortgage, of course. Short memories have unintended consequences. That is why many expert analysts are fearful of increased lending activity among nonbanks.
There are already numerous signs that our financial situation in America could very well get worse, rather than better, in the near future. I hope I am wrong for the good of our nation, but my crystal ball tells me that my prediction for another downturn, or rather a continuation of the one in which we still find ourselves, is most likely.