By: Elijah Levine
In the midst of a growing economy, rapidly shifting political landscape, and a plethora of other factors, many Americans are wondering if a repeat of 2008 is right around the corner. There may be some validity in these claims, but before delving too much into whether these claims are right or wrong, let’s get the facts.
What Factors Indicate a Market Crash Is Coming
The United States economy is one of, if not the most, complicated economies in the entire world. At any given point in time, 350 million people are working to navigate hundreds of thousands of market factors, whether they know it or not. But what factors indicate that the market might be on the verge of crashing? Gord Collins outlines 13 critical factors that tend to contribute to a crashing economy.
Excessively High Home Prices
Increasing Underwater Mortgages
Fast Rising Interest Mortgage Rates
Rapid Reduction of Government Spending
Slowing Economy/Sudden Rises in unemployment
Wage Growth not Keeping Up with Home Prices
Geopolitical Shifts Specifically Pertaining to Tax Changes
Volatile Stock Market
High Levels of Consumer Debt
Rising Cost of Living
Risky Low Rate Mortgages
High Energy Prices (oil, gas, etc.)
What Does This Mean for Us?
It is obvious why many of these factors would contribute to a crashing market, however, these factors are not equal across the United States. Some cities are still experiencing dramatic consequences from the last recession, while others have bounced back but are now faced with a series of other ominous factors. So how can one tell if the economy is on the verge of a freefall?
The short answer: we can’t, nobody can. Whatever happens to the economy is not the result of one single factor across the entire country, it is a combination of factors that exist all across the country in different capacities and intensities. That being said, there are some critical factors affecting the economy as a whole right now that must be considered.
Currently, despite a very strong GDP and relatively stable real estate economic status, interest rates are rising fast… very fast. The Federal Reserve System (FED) is raising interest rates to as high as 70% in order to cool down our rapidly growing economy so that it doesn’t spiral out of control. President Trump is not happy about this, saying that this is a premature move as the economy will not reach critical limits for over a year. Experts agree, stating that every time the FED has raised interests rates this much this quickly, it has lead to a major recession. Experts state that raising rates kills off businesses and puts immense pressure on mortgage holders.
A major cause for the FED’s decision to raise the interest rate is arguably the most serious factor that indicates a crash is near: the current trade war with China. President Trump raised import tariffs from China from 10% to 25% at the start of 2019, and this is significantly affecting US businesses, in both good and bad ways. Importing businesses have been losing money as their costs have increased by 15%, while suppliers have gained business as purchasers may be actually saving money from buying domestically. Critics say that this is bad for our economy as it seems more businesses are hurt, rather than helped, however, others say that this is a step towards establishing a fair and mutually beneficial trade relationship with China. One thing is certain: if proper steps are not taken to ensure a mutually beneficial trade relationship, this trade war will only be detrimental to the United States economy and could pull other factors in the direction of a market freefall, something that nobody wants.
With all of this in consideration, 100 experts were polled on when they think the next recession is coming. The majority of them (22%) believe that the recession is coming in the first quarter of 2020. However, nobody can be quite sure, things can change. Trump may be able to figure out a proper trade deal, factors could not contribute as much as some people think, and the discrepancies between cities could shift. There are so many factors at play, but in looking at whether the housing market will crash or not, there is no definitive answer; only time will tell.