Market Trends April 2023
It’s Not 2008
Are we in danger of another Great Recession? After a series of bank failures and rescues, many people are worried that history might repeat itself and plunge the economy into another Great Recession. The Great Recession in 2008 was triggered by a housing market collapse brought on by lax mortgage standards and regulations that left people awash in debt they couldn’t pay.
Between 2001 and 2007, mortgage debt rose nearly as much as it had in the whole rest of the nation's history and home prices doubled. Mortgage salesmen hustled unqualified people to apply for mortgages they couldn’t pay off. Lenders weren’t concerned because they sold those mortgages to big investment banks that wanted to cash in on zooming housing values. Eventually the house built on greed collapsed and took institutions like the 158-year old Wall Street giant Lehman Brothers with it. The collapse of Lehman Brothers was heard around the world and plunged the country into the Great Recession, with the taxpayers eventually footing the bill for bailing out the banks.
The Dodd-Frank banking regulations that were implemented after the banking meltdown in 2008 were designed to prevent another meltdown. While these regulations were partially rolled back during the Trump administration, these stringent rules still apply to larger financial institutions such as Citi Bank and JPMorgan Chase. It is interesting to note that Silicon Valley Bank had petitioned to be excused from following the regulations.
The collapse of tech and start-up heavy regional Silicon Valley Bank was the largest bank failure since 2008 was triggered by a run on a bank that could no longer meet its obligations. Fear of a bank failure in this age of electronic banking led to billions of dollars being withdrawn in less than 24 hours, which turned that fear into a self-fulfilling prophecy. SVB’s collapse was quickly followed by Signature Bank. Overseas, the prestigious but scandal-plagued Credit Suisse was teetering on the brink of insolvency.
But the Secretary of the Treasury, Janet Yellen, moved swiftly to assure Congress and a nervous nation that the banking system was safe and no depositors would suffer, even if their accounts exceeded the $250,000 covered by FDIC insurance. Yellen also brokered an impressive rescue plan in which 11 larger banks put $30 billion into stressed First Republic to prevent a collapse. Credit Suisse had to sell itself at a deep discount to multinational rival USB in order to avoid disaster. All these institutions are now back in business, albeit under new ownership and with new names.
Unlike the bailout of 2008, the taxpayers are not footing the bill today. The FDIC is funded by the banking industry, not the government. With the banks rescued, it’s unlikely that the near-collapse will impact the jobs of most Americans.
However, credit may tighten as banks try to keep more liquid assets on hand and housing costs may deflate in high-priced areas like San Francisco and Seattle that are heavily tech-dependent. The Federal Reserve remained steadfast in its goal to tame inflation, but implemented the smallest rate increase possible. If they hadn’t raised rates at all, it would have signaled a lack of confidence in the economy.
Home Improvement Projects that Pay Off
About 95% of homeowners said they plan to take on a major home improvement project in the next five years, according to a recent report by Real Estate Witch. However, only 50% of respondents said they can currently afford to complete the project they want to complete.
However, neither elevated prices nor supply chain log jams deterred homeowners from making upgrades last year. In 2021, 24.5 million homeowners completed at least one home improvement project, up from 22.2 million in 2019, according to a study from Harvard’s Joint Center of Housing Studies.
Americans spent an estimated $567 billion on home improvements and repairs in 2022, up 15% from 2021, the Harvard study found. That figure is expected to reach $580 billion this year.
The average homeowner spent $3,890 on renovations and remodeling in the past year, according to the report. Overall, homeowners get about a 60% return on their renovation investments, according to the recently released 2023 Cost vs. Value report from Zonda Media, a housing market research and analytics firm.
Only a few projects deliver a 100% return on investment, including converting a heating, ventilation and air conditioning system to electric, replacing the garage doors, installing a stone veneer and upgrading to a steel front door. Minor kitchen remodels, such as painting and updating the backsplash, yielded high returns, but major kitchen and bathroom remodels did not, according to Realtor.com.
Amazon Robotic Fulfillment Center
Reporters recently got to tour Amazon’s new cutting-edge fulfillment facility in Papillon, Nebraska, where employees work alongside robots to pick, pack and ship customer orders such as books, toys and housewares. The 700,000-square-foot center with 14.5 miles of conveyors and 4,500 robots will provide more than 1,000 jobs and speed up package delivery to the surrounding communities. The center has the capacity to handle 40 million units of inventory, although it only has about 6.2 million now. With multiple floors, the building contains more than 1 million square feet of storage space, the equivalent of about 20 football fields. Once the new center is fully up and running, it will fill an average of 700,000 customer orders a day. The robots reportedly look like a big version of the disk-shaped vacuum robots. Each robot can carry up to 1,050 pounds of merchandise and deposit them into 7.8 million yellow plastic bins that transport orders and products throughout the building. Humans pack the items into Amazon boxes, add cushioning and tape them shut. The center operates 24 hours a day, seven days a week. The facility manager said that the robots eliminate a lot of repetitive and tiring tasks for employees and also create jobs in robotic manufacturing and service.
Eyes on Target
Target has long been regarded as a trend-setting retailer and two recent developments have other retailers taking note.
After extensive testing, Target will soon be rolling out curbside returns regardless of whether items were bought in-store, online or received as a gift. Target rolled out curbside pick-up for anything ordered online back in 2017 and thinks that allowing curbside returns will improve customer loyalty and cut the costs of processing returns. Returns of online orders are painful for both consumers and retailers, and retailers say they shrink profit margins because they lose the sale and have to devote resources to processing returns and dealing with fraud. In 2022, 16.5% of the $1.29 trillion in total online sales were returned, according to the National Retail Federation. That’s actually an improvement from 2021, when the pandemic sent online orders skyrocketing and the return rate was nearly 21%.
Target opened a new flagship store in Katy, Texas, that is purposefully different from every other Target store in the US. It’s a concept store, designed to deliver some of the intangible things people are looking for today, including inspiration and experiences. The store features a lofty, spacious design that includes reclaimed wood, floor-to-ceiling windows and live plants throughout. The design also incorporates more sustainable features, including natural (CO2) refrigerants to help lower emissions.
Target says the concept is working and performing so well because it was built and thoroughly tested virtually before it was built physically. At 150,000 square feet, the store is more than 20,000 square feet larger than the average Target store. The fully virtual, life-size representation of the reimagined store allowed Target to analyze and redesign features in real time while virtually “walking” the store to ensure the enhancements would work both team members and guests, which is how Target refers to their customers.
This year the concept will move beyond Texas. Target expects that more than half of their planned 200 full store remodels and half of their estimated 30 new stores will feature elements of the design and beginning in 2024 all remodels and new stores will feature the majority of these reimagined store design elements.
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