CONCERNS ABOUT A recession are probably unfounded, but an economic slowdown is still a possibility this year, according to two experts at CBRE Hotels’ Americas Research. In their final episode for 2018 of their “Lodging Insights” video series, CBRE’s Senior Managing Director Mark Woodworth and senior advisor Jack Corgel give their reasons not to panic … yet.
The overall state of the U.S. economy has been much on his mind, said Corgel, who also is a professor of real estate at the Cornell University School of Hotel Administration. It’s also been a constant topic of discussion among his peers, with some expressing the possibility of a recession on the horizon, he said.
“There are people coming out with probabilities of recession ranging from 60 percent over the next two years to less than 1 percent in the next year,” he said. “So there’s quite a bit of difference of opinion on this.”
Obviously, Corgel said, a recession would impact the hotel industry and there are many schools of thought as to how. The last recession, he said, “had a strong credit flavor to it.” If that repeats in the future, it could result in “quiet bubbles” in the economy as mentioned in some academic papers.
“The prices you can see for hotel assets and other things are quite noisy, quite obvious,” Corgel said. “But the credit bubbles are a little more quiet, so we have to look out for those.”
Citing the late economist Hyman Minsky, Corgel said the best indicator of the market’s health is to watch the composition of borrowers and lenders on market to see if something “stupid” is going on. That includes dangerous lending practices
But Corgel doesn’t see a Minsky moment coming.
“The most worrisome borrowers are a very, very small percentage,” he said. “Those are the people who just can’t make payments on either principal or interest.”
Unless you see something really stupid in lending practices, such as the 15-year depreciation seen in the 1990s and home loans in the early 2000s that did not require payments for a dangerously long period of time, Corgel said there is no great reason for concern.
“Right now, I just don’t see anything stupid,” he said.
Woodworth said he is continuing to watch things, particularly basic things like period to period changes in demand, which keeps him mostly positive about the economy.
“It continues to be very, very healthy,” he said.
Expectations for the new year among his clients is generally positive, too, Woodworth said.
“I wouldn’t say necessarily a high level of concern that I’m sensing because, again, people continue to travel,” he said. “We think the economy is now going to hold up comfortably for another year, year and a half, and that’s a good solid year longer than we were thinking two years ago.”
So while he doesn’t expect an all-out economic downturn, Woodworth does say there is some consensus that there will be a slowdown.
Last month, CBRE’s December 2018 edition of Hotel Horizons predicted 2019 would be the 10th consecutive year of growth for the industry.
The upbeat 2019 forecast is driven by a projected 2.1 percent increase in demand that should offset an estimated 1.9 percent net increase in supply for the year, Woodworth wrote at the time. This outlook comes after CBRE revised its predictions following 2018’s third quarter to account for the economic boost from tax-law changes, capital spending, improving wage growth and consumer confidence.
“We have already seen the positive influence these factors have on the economy, and lodging industry, in 2018. The impact will persist in 2019,” Corgel said in the previous article.