Be prepared for the downturn to come

Be prepared for the downturn to come

Eric Sprink is not your typical bank president, so it was no surprise that Coastal Community Bank’s annual Fall Economic Forecast event was atypical in both content and style.

Normally such forecasts are delivered by professional economists. Sprink, who has been the bank’s president through a remarkable decade of growth, believes that business owners prefer a different approach.

“We are not economists, we are business owners. If we get it wrong, we lose money and potentially our business,” he said to a room full of customers and business owners as he delivered the bank’s forecast himself. “Economists can be wrong and they keep their jobs. We can’t.”

Sprink’s forecast for Snohomish County is a mix of optimism and caution. At a time when consumer and business confidence are high, he urges some restraint.

“Do not forget about the most recent recession, learn the lessons from it. History can be one of our greatest teachers,” he said, adding, “We very well may lack the imagination of what might cause the next recession, so you need to be prepared.”

The real estate market is hitting new highs again and that is causing Sprink and others some pause.

That last time the gap between wages and the cost of housing was this wide was 2007 and we all know what happened after that. Sprink’s forecast suggests business owners keep investing in the future “but hold enough cash to get through a down cycle if one comes our way.”

In a style uniquely his own, Sprink asked the audience to participate at his forecast events, polling them in small groups to identify what they think might trigger the next recession.

Answers varied from a change in Fed policy linked to the appointment of a new Fed Chair to military action overseas. Sprink suggests that it really doesn’t matter what triggers the next recession — his advice to business owners is to be prepared for one regardless.

“Don’t try to time the market, make sure your business plan is resilient for ups and the downs.”

A healthy real estate market should see prices rise about 3 percent per year on average, on pace with average wage growth.

After the re-setting of the market in 2008-09, real estate values have been increasing well above that level and prices now far surpass their highs from a decade ago while wages remain largely flat outside of the urban core of Seattle/Bellevue.

No one wants to have a repeat of the recession, but it’s also not healthy for the community to have the cost of housing out pace incomes by so much.

Business owners and real estate investors ought to pay close attention to tax reform as a result.

If wages get a boost from tax reform and can catch up a bit with housing costs, the real estate market will likely hold up while supply tries to catch up to demand.

Without tax reform, wages can’t keep supporting the increasing prices and an adjustment is likely to follow.

Tom Hoban is CEO of The Coast Group of Companies. Contact him at 425-339-3638, or tomhoban@coastmgt.com or visit www.coastmgt.com. Twitter: @Tom_P_Hoban.

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