A University of California–Irvine professor shared high financial hopes for Orange County and beyond during a March 25 presentation.
During an event hosted by the Newport Beach Chamber of Commerce, economist Chris Schwarz forecasted the country bouncing back and returning to normalcy this year.
Happier times will come as the result of people saving and having a pent-up demand for buying when lockdown restrictions ease, he said.
The Federal Reserve (Fed) seems overly optimistic, Schwarz said, predicting the economy to grow by 6.5 percent—which hasn’t happened since 2004.
“The Fed tends to be a little bit biased high,” Schwarz said.
Impending Spending Spree?
Many U.S. citizens have significantly increased their savings during the past year, since they haven’t been able to go on vacation or eat out like they normally would, Schwartz said.“People pretty soon are going to do a lot of shopping when they get out there in public,” he said.
The trouble is, he said, that demand could outweigh supply.
“If you have lots of money, and you have a limited supply of stuff, you’re going to have a kind of a fight for stuff,” he said.
Pent-up demand is likely to result in record-high inflation, he said, adding smart businesses will utilize consumer appetite to raise prices.
“There’s going to be a limited supply of businesses because a lot of them have been shut down,” he said. “Even still when things reopen, you’re going to have 50 percent seating, or 25 percent seating, or a lot of restrictions. It’s going to lead to this kind of price pressure that we see that’s going to build up in the economy.”
Another contributing factor to the economic recovery is the speed of the vaccination process.
Housing Market
Right now, the country’s housing supply is short, while the demand is ever-increasing, Schwarz said.Although there are normally upward of one million homes on the market at any given time in the U.S., that hasn’t been the case during recent months.
“We’re down to less than 300,000 houses for sale here in the United States,” Schwartz said.
With the housing supply down and demand high, homeowners have raised their prices.
“If you try to buy a house right now, you’re bidding against 20 people, because there’s really that few houses to buy,” Schwartz said. “Until inventory turns around, housing prices will continue to go up.”
He said year-over-year housing prices are rising 10 percent per year across the nation.
Inflated housing prices are contrasted with record-low interest rates. The current interest rate for a 30-year mortgage is about three percent.
“As mortgage rates come down, home affordability goes up,” he said.
“Rates are so low and it makes everything else, even with high prices seem affordable.”
