Rising interest rates will cool home sales and cut into retail profits and business expansion over the next few years, taking a toll on the San Joaquin Valley’s nascent economic boom, predicts a new report out of California State University, Stanislaus.
For consumers, the return to higher rates makes borrowing more expensive, said Stan State business economics Professor Gökçe Soydemir by phone Tuesday after the release of his biannual San Joaquin Business Forecast. The report is available online at www.csustan.edu/sjvbfr.
“For Valley consumers, this is a good time to start thinking about lowering balances (on credit cards),” Soydemir said. “Step away from those adjustable-rate mortgages.”
But retail will feel the pinch as consumers trim credit card spending, and the rising cost of fixed-rate mortgages, now above 4 percent interest rates, will cut into real estate sales.
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For Valley consumers, this is a good time to start thinking about lowering balances (on credit cards). ... Step away from those adjustable-rate mortgages.
In Modesto, home prices jumped up 8.5 percent in 2016, the highest in the Valley, which overall should see values rise 5.4 percent in 2017 and start to flatten over the next two years, the report says.
The Federal Reserve is raising interest rates to cool the national economy. The impact of interest rates here is expected to outpace the benefits of corporate tax cuts proposed by the Trump administration, should they pass.
“That benefits corporations, but it’s not going to help an average consumer living here in the Valley,” he said.
The weaker dollar President Donald Trump supports would help farm exports, he noted, but also will cut into consumer purchasing power.
Looking at other federal proposals, uncertainty around the Affordable Care Act has cut into health care hiring, Soydemir said. If Republicans repeal and replace Obamacare with the lesser coverage plans now being circulated, he added, the blow will be felt most strongly in areas with more low-income residents and low-skilled jobs. The legislation won a House vote Thursday but awaits a Senate vote.
You don't need a forecasting model to figure that out. It’s going to have a much bigger impact here.
“You don't need a forecasting model to figure that out. It’s going to have a much bigger impact here,” he said.
State figures show San Joaquin, Stanislaus and Merced counties have 61,973 residents relying on the ACA for their health coverage in 2016, adding an estimated 7,000 jobs.
Barring such major disruptions, annual jobs growth across the San Joaquin Valley is expected to slow to 1.49 percent through about 2019. Stanislaus and Madera counties, which fared the best in 2016, will likely continue above the average. The Bakersfield area, hurt by falling oil prices, may be nearly stagnant.
While smaller, the numbers represent an economy still chugging upward, stressed Soydemir. The Valley stands now well above the income and jobs numbers before the Great Recession. Foreclosures here hit an all-time low in 2016, though they will likely rise as interest rates go up.
Wages rose 3.59 percent in 2016, soundly beating inflation, and that should continue because in this region employers are scrambling to hire, he said.
We depleted our groundwater, and that’s the stress that’s coming.
“Unemployment rates are higher than the nation’s, but when you look at its own dynamic, here in the Valley, it’s very tight here,” Soydemir said. The Valley’s higher unemployment rate reflects structural issues, like seasonal agricultural hiring, he noted, and layoffs of Bay Area commuters who live here.
Looking beyond the three-year prediction window, Soydemir said the recent rains helped this year’s bottom line, but there has been no action to address surface or groundwater storage and prepare for the future.
“We depleted our groundwater, and that’s the stress that’s coming. Those wells are still dry,” he said. “When it’s another dry year, that’s problematical.”