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Wednesday, March 18, 2020

And the beat goes on!

Author(s):Ted C. Jones

Are we going to have recession? The answer is yes, but not this year.

A recession is defined as two or more quarters of negative GDP. GDP is the value of all the goods and services we produce. But GDP was up in all four quarters of 2019. We’re just not seeing that yet.

We're in the longest economic expansion the United States has ever seen.

It's just a great economy out there. We've got more jobs than any time in the US in history. We added a 2.1 million net new jobs last 12 months. And they're good jobs. That's the key.

Jobs drive the ultimate demand for all types of real estate since they are essential to effective purchasing power.

In Columbus, you had 16,500 net new jobs in the last 12 months. That doesn't happen by chance. I really applaud your economic development group and what One Columbus is doing.
 
In November, the unemployment rate in the U.S. was 3.5 percent, in Ohio, it was 4.2 percent. But in Columbus, it was 3.3 percent.

You're probably not going to be able to grow jobs this coming year like you did this last year because you don't have anyone left to hire. Still, I think you’ll have about 15,700 new jobs in 2020.

Another reason our economy is so good is the increase in income. Our inflation rate in the last 12 months was just a little below two percent. And yet our average hourly income growth rate was almost three percent. In fact, in the last 12-18 months, we've seen the largest year over year increase in income in a decade.

So not only do you have more people working than ever before, they're making more money than ever before. And what do you do when you have more money in your pockets?

You spend it!

The employment growth rate in Leisure & Hospitality matches or exceeds that of the country overall which continues to be an excellent proxy (in my opinion) of the overall health index of the U.S. economy. 

People feel good about the economy when they spend money on cruises and steaks and spas and resorts and vacations. And we're spending a lot cause we're employing more people than ever before in this field.

Current Leisure & Hospitality job growth in the prior 12 months was 2.3 percent versus 1.4 percent for the total economy.

Columbus is only a one-day drive from half the population in the U.S. and a major headquarters retail center.

Retail sales, which makes up 68 percent of GDP, were up six percent in December compared to a year ago. With two percent inflation, that's over a four percent growth. Now, retail sales are always more in December than January, but we've already adjusted for that. It's just great news.

Although e-Commerce is growing at an increasing rate, over 30 percent of e-commerce sales typically get returned, but only eight or nine percent of in-store sales get returned.

You may have heard that we don’t need retail stores anymore, but that’s not true, you need bricks, sticks and clicks. Retailers who have storefronts see an average increase of 36 percent for their online sales.

So why did housing sales drop from mid-2017 to mid-2019? We had more jobs than at any time before. We had growing wages. We had super low rates. So, what happened?

That’s easy—we didn’t have enough homes to sell!

Because demand is outstripping supply, home values and rents will continue to rise.

Some are making the argument that homes are no longer affordable. I’m here to say that housing is highly affordable. It's how we spend our money that's making it unaffordable.

According to an article in USA Today, the average millennial spends $300 a month on alcohol, $56 a night if they’re going out. Boomers spend $151 a month.

One of the studies I saw last year said that the typical person that drinks Starbucks drinks over $300 a month.

When I was talking about this in Austin, one lady told me that with their three subscription services, she and her husband were spending $414 a month on TV.

So, if she stops drinking coffee and alcohol and gives up cable, she's got $1000 a month to put towards the house or savings for down payment.

We don't have an affordability issue. We have a budgetary issue. We have the money. We just don't spend it on housing.

Let me tell you just how affordable your housing really is.

According to Rentcafe.com, the average rent in Columbus was $941 a month. Rents are up three percent year over year and the size of an average apartment is 885 square feet.

Let’s compare that to an average priced home in Columbus — $200,000. With 20 percent down payment, you’ll have a $160,000 loan which, at 3.6 percent, is $727 per month and leaves you with $214 to contribute towards insurance and taxes.

With an FHA loan, you still have $68 to apply for taxes and insurance.

So instead of living in a typical apartment, less than 900 square feet, you could own the typical house for about the same monthly money. Don't tell me housing's not affordable.

You give up coffee or alcohol and you're there!
 
Here's my outlook for this year.

  •  We have a good economy here. It's just so average and that is sustainable.
  • Jobs and wages will continue to grow, but it will be at a little lower pace.
  • Stable and low interest rates. I think they'll go up by half a basis point
  • Home prices will continue to rise, but at a slower pace.
  • Cheap (but profitable) energy – fuels the economy.
  • Manufacturing comeback - Reason I love manufacturing so much is no college or debt is required to have a great career and I think that's great.
       

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