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Reading the Tea Leaves

          tea leaves  It’s not difficult to predict the future if you know where to look. Soothsayers used to make predictions by reading tealeaves, which isn’t a terribly effective method for real estate or investing (believe me, I’ve tried!). But I’ve had better luck since I started looking for leaves outside the teacup. There are tealeaves all around us, from economic data to consumer habits to local construction projects. The trick is knowing what to look for and how to make sense of what you find.

They call economics the “Dismal Science,” and for good reason: it’s the only discipline that makes weathermen look competent. Economists spend all day reading tealeaves in the form of economic data. Employment, consumption, household debt, demographics, and manufacturing data—virtually any kind of data you can imagine. The trends in the data give economists an idea of what to expect in the short, medium, and long terms, even if most economists are almost always wrong. But occasionally they get things right. They knew a housing collapse was imminent in 2007; they knew the banking sector’s reliance on mortgage-backed securities would be disastrous; and they knew the banking system would suffer a catastrophic meltdown without TARP.

Today, they data are telling them different things. They know we’re in a demand-side slump because the Boomers are retiring and spending less, and the Millennials haven’t yet arrived to replace them. They know credit card, mortgage, and auto debt are shrinking while student loan debt is expanding rapidly, meaning consumers will have less short-term, easy-to-pay debt and more long-term, non-dischargeable debt. This will have—and in fact may already be having—profound consequences for the economy. Student loan debt is becoming the sole difference between being able to afford a new home and not. Every piece of economic data is a tealeaf, even if they are unreliable tealeaves. The data takes months to be released and is often subject to future revisions. But reliable or not individually, they generally point to the same conclusion when taken together.

There are other more reliable tealeaves around. The largest I’ve ever seen is five stories tall; it’s right off the freeway near Nevada and I-25. There are other multi-story tealeaves off Powers and up north. There’s a dozen-acre tealeaf off Marksheffel. I’m talking about new apartment complexes, new condo projects, and new neighborhood developments that sprung up overnight in 2006 then stayed dormant until this year. Eventually, these projects will become data for the economists to parse. But right now, it’s data for you to use immediately!

Construction projects tell us a lot based on their size, scope, and type. The boom in apartments and condos suggests housing demand is concentrated among young, single individuals. Many will be renters for years. If they marry, they typically put off having families—and thus needing larger homes with yards. Neighborhood developments have once again ground to a halt, after modestly recovering over the last couple years. Single-family residences are simply not in high demand at present.

You may have noticed recently that TV commercials are focused on older demographics. This is because older people have more disposable income than younger people. It’s also because younger people aren’t watching TV anymore. Something as benign as a TV commercial contains a substantial amount of information about the broader economy. Tealeaves can be found virtually anywhere you look. They are data and trends that offer insight into the future. Once you learn to identify them, you can start using them to plan for your future.

 

9-13-2014 Reading The Tea Leaves

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About Jay Garvens

Standing at the intersection of our local real estate market and the nationwide financial industry, Jay Garvens gives you the complete picture of every story affecting today's mortgage market! From personal finances to the political decisions moving markets, tune in for a weekend dose of straight talk from Colorado's most candid mortgage industry commentator! Honest, unbiased, and always unpredictable, Jay explores every facet of today's mortgage industry with an approach that's refreshingly blunt and enormously entertaining!

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