The economy is currently in a “transition” phase. To determine if the sun is setting on our current cycle, it is critical to watch for leading indicators of where we might be heading. One of the strongest predictors of a recession is consumer purchases of one particular item. What is the indicator? Why have sales dropped 20% this year? What does this mean for real estate?
Recreational Vehicle sales:
Shipments of recreational vehicles to dealers have fallen about 20% so far this year, after a 4.1% drop last year, according to data from the RV Industry Association. Multiyear drops in shipments have preceded the last three recessions.
“The RV industry is better at calling recessions than economists are,” said Michael Hicks, an economist at Ball State University, in Muncie, Ind. Hicks says softening consumer demand for RVs coupled with rising vehicle prices due to tariffs suggests the economy is either in a recession or soon headed for one.
RV sales are a leading indicator of the economy as they are a fully discretionary purchase for many Americans covering various economic tiers from the smaller less than $10,000 tow behind trailers to the $300,000 house on wheels.
Consumers usually stop buying expensive, big-ticket discretionary items like RVs when money starts to tighten. As such, economists watch for declines in the RV sector for signs of a downward-turning economy.
Companies are already reacting to the slowdown
More than 80 percent of recreation vehicles sold in the U.S. are produced in Indiana, and roughly 65 percent of that production takes place in Elkhart County, according to the RV Industry Association. RV manufacturing giant Thor Industries Inc., based in Elkhart, said it was cutting back production of RVs and shifting its staff to a four-day workweek. LCI Industries , another Elkhart manufacturer, consolidated some of its facilities to address the slowdown. RV companies are beginning to react to the slowdown in consumer demand. This slowdown will eventually flow through to other industries.
Impact on real estate
The RV industry is confirming what we are already seeing in many slowing real estate markets. The consumer is getting nervous and holding back on large ticket items like RVs or real estate. Real estate sales have fallen while rates have also fallen making houses more affordable. One would guess that sales would do just the opposite and increase with the huge reduction in interest rates. Unfortunately, sales have continued to fall as the consumer has grown weary. Consumer confidence has been the largest economic driver, as this wanes, as RV sales are indicating, we are in for a slowdown throughout the economy including real estate.
The number one indicator of how the economy will perform is how people “feel” about the economy. Unfortunately, a “feeling” is very difficult to directly measure so we must look to indicators like RV sales that capture the consumers economic mood. With sales of RVs falling 20%, consumers are clearly showing with their wallet that they have a more pessimistic feeling of the economy. This changing mood will flow through the economy with real estate slowing. The depth of the consumer pullback is the million-dollar question that will shape the next economic cycle.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all they need is their simple one page application (no upfront fees or other games).