Well, here we are in Week 10 of the shut down. I still can't get a haircut. I'm going to have a full on Nike swoosh on the side of my head if I can't get the top of this thing cut soon. But here we go!
Keeping an Eye On Mortgage Delinquencies
I want to talk about a few things. First, we're continuing to work on and look at mortgage valuations. We've had the worst month on record of mortgage delinquencies in history. We've seen the fastest acceleration in rent delinquencies in history. The data for the last couple of months is dreadful. However, that does not change the fact that we still should see a second half recovery.
We're seeing the federal government continue to take heroic actions to spray money across the economy to get us through this season. Mortgage valuations are still high on our radar screen. Second half bank stress tests are going to be crucial because, as I've said before, if we get a banking crisis, that is far more difficult to dig ourselves out of than what we're dealing with right now.
Summer and Reopening Starting Together
So we're getting into summertime. We had the unofficial start to summer this weekend and boy, it was good to be in the sand and surf and down the Shore even though a lot of places are still not open, especially in New Jersey where I live.
We're continuing to fight the good fight and see how quickly we can get opened up. Some of us are wanting to "Go! Go! Go!" and others are wanting to be more stable and patient. The process is still unfolding so I want to talk about where do we go from here. The economy is going to be shifting significantly.
What We're Worried About in Recovery & Reopening
What are we worried about? We're worried about things like airplanes, hotels, rental car companies, office space. These are all areas of the economy that are going to be hit for a very long time.
Class A, Class B office space - if you're emptying out your office building and telling everybody they can work remotely, what are you doing with a $300 million office building? It's basically being mothballed right now. If you figured out how to not have to use that asset to run your business, why do you ever need to go back?
Airplanes, hotels, rental car companies, and office space are all areas that we are very concerned about.
What We're Optimistic About in Recovery
Areas that we are optimistic about? Housing, manufacturing, supply chain, and especially supply chain diversification. We think there's going to be a push to diversify outside of China for sure, to bring some of our integral supply chain manufacturing assets back into the US.
We need to be producing about 1.6 million new housing units a year just to keep up with organic demand here in the United States. The reality is that we hit those numbers in 2006-2007 and went off a cliff in 2008. We didn't get back to those numbers until 2019 and guess what we're doing in 2020? We are going off a cliff again.
There's a built up demand in housing. We literally can't build houses fast enough right now. We're hopeful that this is going to be some of the catalyst that helps our economy rebound in the second half of this year.
That combined with ultra low interest rates, if you haven't refinanced your existing mortgage, now's a good time to at least consider or look at it. Housing we think is going to be a big part of the catalyst for how things move forward.
Yes, it is a little weird for us to say, "Well, mortgages on one end could be the biggest systemic threat we have, and we need more housing. We need more mortgages to fund the organic demand in the economy." So there is a two-ended side to this Seesaw. We don't know which way it's going to go. We're very hopeful, but cautiously optimistic. We're keeping an eye on a lot of the canaries in the coal mine.
Here With Perspective for the Decisions Ahead
We here at Vizionary Wealth Management are here with perspective for the decisions ahead. If you need us, you're never an inconvenience. Call us anytime. Have a great day, enjoy the start to summer. Let's all go outside and get some vitamin D!
Wayne Wagner Jr., ChFC