America’s Achilles Heel
I want to drift off topic for a bit. Last week we were advised that the U.S. was under a massive cyber attack. As of today, Sunday December 20, the attack is on-going, there is no determination of who is responsible, how deep the attack has penetrated, how to stop it, what its ultimate potential is, what its limits are, or what its purpose is.
We can speculate or deduce the purpose. America is undisputedly the most powerful military nation on earth. If an adversary wanted to take us down, it would be foolish to pick a fight requiring a toe-to-toe hardware clash. So how would a foe go about engaging in a winnable war against the U.S.?
First, listen to what we consider the most important, nonnegotiable, and urgent component of our society. Bill Clinton revealed our Achilles heel and made it public with no protest. I’m not blaming Clinton for the weakness, rather identifying a marker that revealed to the world America’s revised foundational purpose. Was it freedom, defense, liberty, or democracy? No, those were just concepts regurgitated to justify questionable actions. In truth, as Clinton said, “IT’S THE ECONOMY...STUPID.” Every American adversary has known our weakness for decades...personal and national monetary power. China has been the most successful by making the world dependent upon it for both supply and consumption. The world is China’s pawn.
Now let’s consider the state of affairs today. We are at war...cyber war. Is this a new war? Certainly not. In all likelihood it is a war that America started many decades ago for the purpose of espionage.
The media is a vital war weapon...a tool used to sway public opinion to support spending. It has never been more obvious than 2020. Step back and see the big picture. Disruptions like terrorism and unwinnable wars like Korea, Vietnam, Iraq, and Afghanistan, man-made pandemics, cyber attacks are all diversionary tactics for the enemy to threaten and seize control of more power. Why? It is human nature. We have evolved to be naturally predisposed to fear, which is a by-product of evil. America’s Achilles heel is not the economy, it is the same as every nation on earth...self imposed fear. Until every soul overcomes all fears, this is how we exist. Is that even possible?
Housing When the Buzz Is Gone
Recently I outlined the reasons why housing should be strong into early spring: basically supply shortage and urgency. I stopped short in early April for a reason. This housing buzz is dangerously infectious, just like the pandemic and the current lumber market. Folks are fearfully reacting. We have a housing shortage for one reason: relocation; exodus from metros to suburbs. For housing to continue in this state, it must sustain growth among first-time buyers and first-time mover-uppers. That is where the volume is. That is where the problem is.
Despite pending evictions of nearly 10 million households, multi-family is reviving. Why? If folks cannot afford to make rent payments, they surely do not have buying and move in expense funds sitting in the bank. Mortgage forbearance is not forgiveness, it is postponed. The economics don’t work.
The U.S., and likely global, economy is in recession. That recession is being hidden by income inequality. The ones feeling the pain are invisible to those who are not. The Fed continues to forecast recovery when COVID passes, but the reality is, we will not return to business as usual. Business will be smaller requiring fewer jobs: less GDP, fewer new home buyers.
Production builders are overly confident, sitting on the largest order file of presold homes ever. To date, they have no fear, but they should have a huge fear of cancellations. What no one knows is the current or 3–6 month financial status of prequalified buyers. How many are behind on mortgage or rent payments? How much has loan to income % changed?
I believe there is enough liquidity to get builders through the winter, however, the forecast for job creation and income growth is bleak. There will be a wave of cancellations on extended new home order files as buyers fail to verify income as closings get closer. I expect we will see those cancellations impact April closings and increase into late spring and summer. The result will be a radical shift from under supplied to over supplied new homes and a housing recession in the second half of 2021. Willingness and desire to buy will be replaced with unaffordability.
Looking Forward...ML
A veteran lumberman, Matt Layman publishes Layman’s Lumber Guide, the weekly forecasts and buying advisories that help component manufacturers save money on lumber purchases every day. You can reach Matt at 336-516-6684 or matt@laymansguide.info.