Problems Set to Hit Housing and Service
Sectors
Most of the New Year's Eve good cheer hangovers have vanished. The good
feelings from the extended Christmas season are now as bleak as the mid-winter
weather sweeping the country. So what does one to look forward to in 2014 on the
economic front?
The economy has some nasty surprises for most Americans in the coming year,
Obamacare--surprisingly--may not be the worst. Oddly, the home mortgage sector
and the service sector may very well replace The Affordable Care Act as bigger
losers in 2014. The problems could cause the economy to act like it has a severe
hangover.
The rebounding home real estate market will quite probably face severe
headwinds for a couple of reasons. First, some of the stimulus programs advanced
by the government will be closing, unless Congress caves and renews them. But
the nice rebound bounce in 2013 will also cause some problems for the coming
year.
Millions of loans are still upside down, meaning the mortgage is higher
than the current value of the home, or still not current on the mortgage
payment, even after refinancing forgave billions in mortgage balances so the
banking sector would look better.
But the makeup will come off because the government restrictions placed on
lending institutions in foreclosing on these bad loans is now ended as well,
revealing the failure of the government programs in the real world of business
dynamics against an open-ended printing press of fiat.
Foreclosures are expected to rise significantly in 19 states as the
financiers shake off the political rust placed in the system and once again
push foreclosures through. The reason for this is before lenders were loath to
run someone out when the property would probably not sell. Now they are more
hopeful of a quick return for their effort with a positive sale. Another reason
the lenders failed to evict deadbeat owners was the fines they faced if the
property was not maintained. As long as the homeowner remained, this upkeep was
his responsibility.
Over the past six months the logjam of bad loans taken care of by
foreclosure auctions has risen steadily. This market appears ready to explode in
the first six months of 2014.
The only worrisome wrench in the works is these home auctions are not
selling to homeowners but to investors. As anyone who has witnessed the rental
market's lack of maintenance compared to hands-on ownership can testify, the
sales to investors looking for quick profit is not the same as a sale to a
family looking to live in the home for an extended period. Thus overall sales
volume in real estate is on the decline and will continue until more
non-stressed sellers enter the market which doesn't appear likely in 2014.
Thus the housing gains of 2013could become a fond memory.
The other problem area is the service sector. During December sales dipped
at these companies and orders plunged to a four-year low--putting it right back
to low 2009 levels.
The problem here is competition--too much competition.
The service sector had been the leading light in the economic picture as
month after month, quarter after quarter it showed a rising tide. It is still in
positive territory but there are some red flags appearing.
The reason there is a worry is 90% of all employed people in the United
States are classified as being in the service sector. Declines in orders and
increases in business stockpiles are attributed to "a little bit of excess" in
anticipation of the holiday buying season. These problems are "expected to
recover" in the coming months. It should be noted both statements are extracted
from 2014 government reports.
There is a conflict with the government figures reported and the actual
sales volumes coming from company data in America. For instance, the government
clings to the notion in its reports that retail sales posted healthy gains in
November and December with some of the bigger gains coming from auto and
furniture sales. Yet the auto industry reported sharp declines in holiday
sales--badly missing original expectations--and overall the four-week Christmas
shopping season fell 20% from 2012 levels at retail outlets.
But the service sector is the one area expected to be hit the hardest by
the ACA regulations. These people are either seasonal or permanent part-time in
many cases. The provisions of Obamacare do not fall on their employers but on
them. They may not have the discretionary income to spend on health insurance
and are also the one group that is very top-heavy with the younger crowd
Obamacare is depending on to keep insurance premiums down.
If inventories can be sold down, both in housing and retail outlets, these
worries will fade quickly. But the fact the government's official 4th
quarter numbers are being revised downward from the robust levels expected as
late as mid-November is an ominous sign for the sustained economic growth
necessary to overcome the grip of a lowering consumer confidence level.
"I have sworn on the altar of God eternal hostility
to every form of tyranny over the mind of man."--Thomas
Jefferson
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