Look at the chart above, there is a direct correlation between heavy truck sales and GDP growth which is one of the best indicators for the health of the economy. As you can see heavy truck sales plummeted, which points to a recession. On the flip side, my servicing data is giving the 100% opposite answer with no recession in sight. Who is right and why should you care? What does this mean for real estate prices?
Why look at Heavy Truck data as an economic indicator?
Since 1979, when the data became available, a collapse in sales of heavy trucks has coincided with recessions. The recent downturn in heavy truck sales, which started in 2023, should be a concern for policymakers. So based on the chart above, we have some problems in the economy as heavy truck sales have plummeted the last 3 years.
Is Heavy truck data a good indicator for this cycle
As I looked at the chart above, you can see a surge in heavy truck deliveries in the 2020 to 2022 time frame. Basically, it appears that many sales were “pulled forward” and now we are seeing a drop in demand not necessarily because of the economy but because companies bought so many trucks 3 years ago that are still in service. Note the average life of a heavy truck is around 15 years or so which means that demand will stay soft for a bit until replacements are needed.
Note, this is just my preliminary explanation, it could be part of demand being pulled forward while also a general nervousness from buyers that the economy is softening or a combination. Unfortunately we don’t know what the real reason behind the pullback is so we can’t totally discount this metric.
My servicing data telling the opposite story about the economy
Whenever a bold call is made that a recession is imminent or that smooth waters are ahead, I always try to evaluate multiple data points. Fortunately I have proprietary data which gives me a view that very few have.
We are a private lender and we also service all our loans in house. I routinely track our servicing metrics and most importantly late payments. How many borrowers are 30/60/90 days late.
When I look back around 2007/08 we started to see a huge uptick in 30 day lates which ended up being a huge indicator (that I missed by the way) for the recession that was to come about 12 months later.
As I was writing this, our lates are the lowest they have been in over a year. This indicates that our portfolio is performing better than a year ago and should mean that the economy is on more solid footing than the heavy truck data suggests. Essentially my delinquency data is giving no cause for alarm of an impending market reset in the next 12 months or so.
How can two data points have drastically different answers for the economy?
A number of events happened during the Covid period that we are just starting to see flush through the system from PPP money, to inflated credit scores, to loan forgiveness, to people not paying rent for years, to cash payments to borrowers, to substantially lower mortgage rates than historically, to ….. Long and short a ton of things happened around Covid that are just now unwinding. Take for example student loans, millions are just now beginning to make payments after 4 years of basically free money. Furthermore, all the pandemic savings of the gifting of money to people is finally burning off.
Long and short, nobody really knows where we head from here as old data points may or may not be applicable to predict this recession as there are all the factors above that are going to shake out somehow, the question is how and when.
Why should you care about heavy trucks or servicing data?
Whatever happens in the broader economy will flow through to real estate relatively quickly. If there is a recession there will be a reset in the stock market which will ultimately impact real estate via the wealth effect (or lack thereof). Furthermore in a recession unemployment rises substantially which would ultimately lead to less demand for real estate and more than likely an increase in defaults.
Trucks, Servicing lates what does this all mean and what should you do?
I did a survey of everyone who reads my real estate blog and the results were surprising with the highest probability 30% of respondents indicating stagflation meaning the economy basically kicks along with real estate prices stagnant and income growth stagnant as well, basically indicating the economy is stuck. I think a stagflation scenario is the most plausible if I look at all the various predictions and average them, you end up with a stuck situation like we are seeing now in real estate.
Long and short, nobody really knows how this economy is going to play out as there are so many unique variables happening all at once that we have no historical context on. Unfortunately, in my mind, this leads to the most likely scenario of stagflation which is the worst outcome. I would rather have a recession than an extended stagflationary period. We will all get to see what prediction pans out over the next year and be able to look back and see who was correct.
In the interim with this much uncertainty, I would recommend staying liquid so that you can ride through whatever the market throws
Additional Reading/Resources
https://realeconomy.rsmus.com/market-minute-does-a-decline-in-heavy-truck-sales-indicate-recession/
https://www.fairviewlending.com/category/survey-responses/
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Glen Weinberg personally writes these weekly real estate blogs based on his real estate experience as a lender and property owner. I’m not an armchair reporter/writer. We are an actual private lender, lending our own money. We service our own loans and own commercial and residential real estate throughout the country.
My day job is and continues to be private real estate lending/ hard money lending which enables me to have a unique perspective on the market. I don’t accept any paid sponsorships or ads on my blog to ensure accurate information. I’ve been writing this for almost 20 years and have over 30k subscribers. Please like and share my blogs on linkedin, twitter, facebook, and other social media and forward to your friends . I would greatly appreciate it.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, and Florida. We are recognized in the industry as the leader in hard money lending/ Private Lending with no upfront fees or any other games. We fund our own loans and provide honest answers quickly. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all we need is our simple one page application (no upfront fees or other games).
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 Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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