Last week, The Kentwood Companies sponsored a real estate and economic forum for our agents and clients. The speakers were nationally recognized experts in their respective fields, and had some extremely interesting comments to make about the U.S. economy, the Denver, Colorado economy and real estate trends. Over 1,000 people attended, and the local media was there as well.
I plan on presenting to you the highlights from each speaker, but am writing one at a time. Today, let’s hear from Erik Davidson, the SVP and Senior Director of Investments for Wells Fargo Private Bank.
He questioned, “Are we in a recession obsession?”
Davidson explained, “Recessions are neither good nor bad, In the past 50 years, there have been 80 recessions and economists have predicted 11 of them.” “The last recession ended on Nov 30, 2001. Economists declared that recession on Nov 26th, 2001. So you see, they are difficult to forecast.”
Erik joked, “A recession is when your neighbor loses his job. Depression is when you lose your job.”
If you review the chart for Consumer Confidence in Davidson’s power point presentation, you’ll see we are facing a challenging time. Erik continued, “The Misery index is back to where we were in the early 80’s. Are we in a triple bubble? A housing bubble, a credit bubble, and a commodities bubble? The magnitude is not just 3X a single bubble. With those 3 factors combined, it causes a higher magnitude of result.”
Erik concluded, “What does all of this mean? We will probably go into a recession. It’s probably going to be deeper and longer than what we have experienced in the past, more difficult than what some of you remember from the 70’s. There are still some reasons for optimism though. Denver’s employment growth is still much higher than the national average. The reason for this is Denver’s diverse portfolio of industries: Professional businesses, education, health, construction & mining, trade & transportation, leisure & tourism plus many more.”
One of Erik’s big concerns, he explains is that currently 56% of US treasuries are help by foreign investors. “We in the United States have been the recipients of a tremendous amount of foreign aid from China, Japan, etc.”
“What is causing all of the foreclosures? Is it a sub-prime crisis or an ARM crisis? 2/3 of our subprime loans are adjustable. ” People have seen their payments jump dramatically. This suggests that the crisis was founded with too many adjustable rate mortgages. Borrowers really didn’t consider they’d be repaying at the higher levels. People thought the housing prices would continue to rise, and when their mortgages adjusted they’d either refinance or sell.
Colorado has been better than the rest. Unemployment in Colorado is lower than the national average. Employment still showing positive growth in Colorado. The Denver economy is very diverse. Our economy is much better suited to withstand blows to single sectors. The rest of the country has been experiencing extreme highs and lows. We in Denver were only at 4.7% decline for housing prices, while the national average is at 15.9%.”
Erik coached the audience, “Denver is better than the rest! Be opportunistic! The best and most important thing for an investor to remember is to accommodate the markets. You want to be buying when others are selling and you want to sell when others are buying.”
“The 4 most dangerous words in investing are: “this time is different.”
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View the original article at LifeStyleDenver.