There Are Still Long Term Risks In Certain Sectors

There is no question the economy has improved and continues its slow slog forward. Compared to Europe and other countries, we are in relatively good shape with the banks in very strong condition and most major corporations having strong balance sheets and a lot of liquidity. Consumers have reduced their debts and are now mostly in a stable situation if they are employed full time. Home values in many markets have recouped part of their losses, sufficient to at least get many owners at or above their debt level either through appreciation or modifications. Almost nobody is spending extravagantly anymore, and buyer are not reaching to buy an overpriced house. In short, we seem to be at least in a situation where there will not be a new financial collapse for many years to come, but it will happen again in ten or so years. They never learn and greed eventually wins out. 

What is not being talked about much is that the housing market, while seeming to be good, may not be so good as it seems. Recent statistics show that many people who can afford a home are not choosing to be buyers because the belief in the dream of ever rising home values and equity creation is now greatly dimmed and questionable for many. While some markets like Phoenix and Vegas and Manhattan, have seen large increases in demand and value, they are not the norm and they are coming off a total collapse in values. There is some belief that Phoenix, as one example, has run too fast and too high. It is unclear how many houses were bought on spec to flip, but surely there were many. Home ownership nationally is now back around 64%, and that is probably equilibrium or close to it. Long term unemployment continues to be a major problem with no relief in sight. Fully employed people earning enough to buy a home continues to be at near record low levels. Increasing numbers of people are now retiring or just dropping out of the labor market. None of these people are active home buyers. In fact, as the values of houses has improved and as there are more baby boomers, there is likely to be a growing seller component in the housing market which is not offset by first time buyers who don't have the equity or credit.

As the jobs market continues to be relatively modest, and many college grads are unemployed or living at home, they are not the first time buyer component they once were. All of this suggests that there is a very good future for multi and less costly condos. It is not that the new home market will be bad. Just do not expect that it will come roaring back for many years. It will not likely achieve the levels of 2005 for another 10-20 years.

It is also now completely clear that retail centers are going to be in trouble as time goes on. Online shopping has passed the tipping point in 2013 and many people are simply realizing that for many items it is easy to sit home, not get into traffic or hassle and not visit the stores in the mall. Many major anchors are closing stores and are much more likely to close marginal stores than ever before. This is likely to accelerate as online shopping becomes an ever growing piece of the retail sector. Amazon and Costco and other well run discount retailers are making it very easy to find virtually anything online while sitting in your living room. Overnight shipping makes instant gratification a reality. Package shippers like UPS are collocating with Amazon and others to make delivery seamless.  Shopping online is now painless and returns are easy. There is no stopping this trend. Anyone who says online will never be a major component of retail has their head in the wrong place. The wave is going to drown you. That will not eliminate retail centers, but they will change, have a harder time getting full rents, and have smaller stores in the malls and centers. It is not where I would want to invest long term.