THE SHOP

January '20

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10 THE SHOP JANUARY 2020 and mid-sized companies, in particular, do not have the resources to quickly find new sources of materials." HOUSING REBOUND Retailing depends on the economy, and the economy depends on housing. Moody's expects 2020 to be the first year of a strong residential construction recovery led by single-family homes, with housing starts projected to grow 7.0%. This comes off a rocky 2019 in which starts were expected to drop by 0.7% when the year's numbers are finally tallied. Why the dismal 2019 experience? "There have been a number of obsta- cles to stronger residential construction," says Koropeckyj. "The first is a shortage of specialized workers. The second is the prevalence of strict residential zoning regu- lations, especially in dense urban areas. The third is a shortage of residentially zoned land within commuting distance of business areas in some metro areas in the Mountain West and Inland South." Older millennials now reaching prime home-buying age are expected to drive the 2020 housing recovery by entering the market at a time when the housing inventory-to-sales ratio is at record lows. The fact that zoning is generally less restrictive for single-family as opposed to multifamily construction translates into a much stronger single-family construction forecast. Relatively low mortgage rates will also help, though these are expected to start rising in 2021. The housing rebound will be tempered to some degree by declining affordability. The median price for existing single-family homes is expected to rise 4.1% in 2019 and 2.9% in 2020, compared with 4.7% growth in 2018, according to Moody's. The deceler- ation of price growth in 2020 is due largely to the increase in housing starts bringing more units to the marketplace, as well as to price resistance from buyers. "Even though home prices will decel- erate, they will still increase, and ownership will become even more out of reach for many households than it is today," says Koropeckyj. Banks, for their part, seem to be filling their critical role in a robust housing market. "Mortgage lending has been continuing unabated and largely concentrated among borrowers with high credit scores," says Koropeckyj. "We expect this pattern to hold in the future." Interest rates are expected to continue to play their vital role in supporting mortgages. "In 2019, interest rates turned lower rather than higher, which was a surprise," says Hoyt. "The reason was the unan- ticipated trade war, which was clearly a negative and reduced economic prospects significantly relative to expectations." CORPORATE REBOUND Retailers should be assisted in 2020 by a rebound in corporate profits, which Moody's expects to grow by 4.9%. That's a big improvement from the 1.9% figure expected when 2019 numbers are finally tallied. "Contributing to the rebound is a weaker U.S. dollar, which will improve the com- petitive positions of U.S. goods so that profits from abroad will increase," says Koropeckyj. While the 2020 figure looks compara- tively robust, it remains weaker than the average 5.2% growth in corporate profits registered between 2009 and 2018. And the lackluster performance, along Older millennials now reaching prime home-buying age are expected to drive the 2020 housing recovery by entering the market at a time when the housing inventory-to-sales ratio is at record lows. Retailers should be assisted in 2020 by a rebound in corporate profits, which Moody's expects to grow by 4.9%. Retail Forecast 2020

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