On today's show, we're looking at what boats, recreational vehicles, and cottages can tell us about the economic cycle.
The pattern is familiar. Demand exceeds supply. Prices rise. Producers expand. Buyers accelerate purchases because waiting appears expensive. Lenders become comfortable financing assets whose prices keep climbing.
But supply takes time to arrive. By the time factories expand, subdivisions get built, or boats leave the shipyard, demand may have changed. Yesterday's shortage becomes tomorrow's inventory problem.
We've seen this in many segments of the economy like real estate, semiconductors, and oil. High prices encourage the investment that eventually undermines those prices.
The pandemic added another ingredient. We pulled future demand into the present. Families bought the cottage, boat, or RV several years earlier than they otherwise might have. Suppliers could mistake that temporary rush for permanently higher demand.
Once you've bought a boat, you don't need another one next year. Tomorrow's customer already bought yesterday.
Consider the catamaran market. One market commentary puts used inventory at 1,161 boats, against estimated annual sales of approximately 290. Those figures imply that only about 25 percent of today's inventory would sell in a year at that pace. Roughly 871 boats, or 75 percent, would remain, before accounting for new listings or withdrawals.
That's approximately four years of inventory.
Many of these boats are structurally upside down. They depreciated faster in the first five years than the principal paydown on a 20 year amortized loan.
So if you have real estate that is linked to the recreation business cycle, you want to pay close attention to what is happening in this segment.
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