What Trigger Will Push Us Into a Recession?

SAN DIEGO—The US GSP is doing just fine, but labor productivity is up only 1% and real wages are up just a touch. So says Norm Miller, Ernest W. Hahn Chair of Real Estate Finance, University of San Diego. During the morning’s economic forecast at Tuesday’s 2019 NMHC Apartment Strategies Outlook Conference here in San Diego, Miller said that as far as the economy goes, it really doesn’t matter who is the president because the economy doesn’t turn on a dime.

“We will be doing just fine in 2019, but 2020 not so sure. On the job front, it is hard to find labor right now. Treasury bond yields have flattened.”

But does this suggest the “R” word is coming? According to Miller, rates are really good, but his biggest concern is tariffs. “Trade wars and tariffs hurting farmers, construction costs, consumers and tech companies like Apple and a slowing Chinese economy. If we do go into a recession, this will be one of the triggers that will push us there.”

As for the stock market and the effects on commercial real estate, Miller said that when stocks go up and down like crazy, the allocation targets to real estate are met so this inhibits more capital flowing into real estate. “But greater risks in the stock market should drive more capital into real estate in a year or two,” he said.

What about annual deficits, are they a problem? Miller said yes. “Our deficit is a longer term problem like climate change, but it will drive us into deep recession if we actually try and balance the budget by raising taxes and/or powering spending too fast. I think it will hit us hard eventually. We have several more years of pushing it down the road and then we are going to have a big recession. We are going to have to face this debt at some point and then I think we will be ok.”

Looking closer at the housing market, for singlefamily, Miller noted that the cost to build, especially labor, are up for new housing except lumber which dropped this past year. “Interest rates will head up, slowly, but as long as 10 year treasury bonds stay under 3.5% we should be okay,” he added.

Singlefamily home price reductions on Zillow, Redfin, Trulia and REALTOR.com have accelerated, he continued. But on the multifamily front, he expects steady and significant multifamily demand ahead, adding that 4.3 million multifamily units needed by 2030.

Check back with GlobeSt.com in the days ahead for much more coverage from the NMHC Outlook Conference.