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powayseller
ParticipantHow do you define “strong economy”?
I would define it as
1) a diversified job base (i.e. not relying on one sector such as real estate),
2) rising employment in jobs paying above-average wages for that area,
3) prospects of new companies moving here or current companies expanding,
4) partnerships between industry and universities which lead to research and development, and
5) a variety of industries/businesses that are recession proof.
6) Any others?Does San Diego have ANY of the above?
When Inc. and other magazines rate cities for their strong economies, they are looking at job growth and tax revenue, regardless of source. An economy built on construction, lending, and MEW-related business like retail and restaurants, certainly meets their criteria, but a savvy investor would look behind the numbers and realize it is a “weak economy”. I surely wouldn’t invest there.
I was seriously checking into that Yuma land deal, but despite the claims of a strong economy, Yuma is one more example of a city that is weak: dependent on construction and MEW for its fuel. So all the realtors and financial planners who try to sell me their wares, I say, “I’m not stupid enough to fall for it. Look for another sucker.”
ParticipantThis circular argument was made by Senator Sarbanes at the hearing last week, and Ben said , and I will paraphrase, “The PCE metric excludes rents and is more accurate anyway. We look at many factors.”
ParticipantI’ve noticed more vacancies in retail centers, some of them big spaces. The highest rent area in the area, according to one of the tenants, is the shopping mall by Trader Joe’s on Carmel Mountain Road, off I-15. This summer, two tenants moved out. The Cookies for Design, which had been there since I moved here in 1999, had a Sheriff Eviction Notice. The busiest intersection in Poway, on Poway Road and Community Road, has a sign for a 7,000 sq ft lease. Something is definitely going on.
Add to that so many stores are now advertising Help Wanted in their windows. Since when does a bank do that? Something is going on – people are leaving so jobs are harder to fill and sales are down so businesses are starting to shut down.
These are leading indicators, guys! By the time this makes it into the media as, “Retails Sales down in SD, businesses shutting down”, it will be another year.
ParticipantTwo other metrics you can use: historical HAI (housing affordability index) and per capita income/median housing price.
The latter dropped to 7 after the last two housing busts. The Chamber of Commerce predicts 2006 per capita income is $40,661. With 2% annual increase, in 3 years we would have per capita income of $43,149, and median house prices should be $302K. BTW, that Chamber report is awesome! They talk about the lack of good jobs, reliance on real estate, and risks of exotic loans. Check out the link.
How is HAI computed? CAR acknowledges its weaknesses, but says it measures the health of housing. From their website:
“The current underlying assumptions for calculating the HAI are a 20 percent downpayment, current market rates for taxes and insurance, and a 30 percent qualifying ratio.”Historical HAI, off the C.A.R. website, 1994 – 2006
40%, 38, 38, 38, 38, 33, 24, 26, 22, 19, 12, 10Before the last RE boom started, HAI was 33. To get back to 33, we need homes to fall to a price that 33% of the population can afford with 20% down, at current interest rates, paying no more than 30% of income. I will leave the calculation up to you math whizzes.
What should be the median price, based on a reversion to the mean in 2009, if HAI = 33, and median income = $43K?
Participantcarlislematthew, “I’m not sure how 600 bucks a month is 10% of 100K a year, especially as healthcare premiums are pre-tax. If the percentages are using pre-tax salaries then this is more like 5%.”
People who pay their own health insurance do so out of their after-tax pay, so $100K/year is about $75K after FICA and taxes, and $7200/year for health insurance is 10%. Our family pays 0 for health insurance, not even a copay, but we are the exception I believe. My husband’s employer pays the entire $8000 for our family, and that is a cost they have to bear, and for them, that is a big percentage of his wages, and a component that is rising 10-15% annually.
If you earn the median wage, then health care would be 15% or more of wages. That’s why so few people have health care insurance. But the CPI still has to consider the cost, whether you buy it or not. Thus, the CPI seriously underreports the impact of rising health care. The CPI should allocate health care premiums as the realistic percentage that is makes up of a median employer’s or householder’s income. It falls far short.
Bernanke admitted at his Senate hearing this month, that gas was removed from core CPI because it fluctuated so much. But now it no longer fluctuates. Therefore, he consider the CPI and many other measures to get a full picture of price impacts. He also relies on anecdotes. I once read that Greenspan regularly checked in with the FedEx CEO, because that guy was at the front end of the economy, and had his pulse on what was going on with prices and sales. I am sure Ben talks with various CEOs as well. He has much more data available to him that we will ever have, and he is very smart. But he cannot tell all that he knows, because his job is to maintain price stability.
Maintaining the CPi in its perverted form is necessary to maintain this price stability, IMO. Those of us who realize it, we are at the leading edge and should figure out how to profit. When the Fed pauses, stocks will probably rally, and some short players will get squeezed. Next, foreigners will be less interested in our Treasury bonds and dollars, so the prices of both will fall somewhat. This is a good month to diversify out of dollars, if anyone has plans to do so. Do it before they lose another 3%. Any comments?
Thanks for clarifying about GM.
ParticipantYes, you did, and that’s when I first saw it. I just wanted to post Will’s story.
ParticipantSDAppraiser, what does history tell us about the effect on highrises after an earthquake? Could an earthquake in SF cause fear of it happening here, thus lowering values?
ParticipantWhat’s VOSD? I don’t want to start my own website. I like researching and writing when I feel like it. When my kids need the computer for homework, I need to get off. That’s how I like it. A business owner asked me to consult for him, so I am working on a proposal. I teach piano too. Thanks for the ideas, though, but I am more interested in economics and analysis/research than in hosting a website. I will ride on Rich’s coat tails on the website part.
ParticipantSell to a developer. They buy in the path of growth and then wait 5 to 10 years until growth surrounds them and then sell to a developer.
“It’s all about supply and demand! If the demand for land in an area is high and the supply of land is low, land prices will go up over time. 87% of both Nevada and Arizona are owned by the U.S. Government or is Indian Reservations.”
So he assumes this land will be very desireable in 5 years. Bugs, what does he see that I don’t?
ParticipantSo the U-T is printing the RE bad news, but some of their own reporters just can’t manage to ask tough questions of their “experts”. I found the U-T pretty good about putting in the AP and other 3rd party stories. This was a good story, and kudos to the U-T for running it.
ParticipantDoes each realtor carry their own E&O policy? Anyway, as you said before, the weaker realtors would be weeded out.
Participantrankandfile – the employment numbers are right on, and they were NEVER mentioned by Alan Gin. I asked him about this in my post More Lies by Alan Gin,but neither he nor his students wanted to answer that question: Why are you saying we have a strong economy, when in reality half of new jobs added since 2003 are in real estate?
desmond – yes, government revenue will take a serious hit. As Thornburg said, there go the infrastructure dreams of the current CA Administration. What will happen to San Diego’s budget? I bet their turnaround depends on current income continuing on for decades. Will SD file bankruptcy next year, as sales tax and property tax revenues shrivel up?
ParticipantI think Tim Iacono is the only person expecting deflation. I can see housing prices go down,but what else would go down? What do you think, sduuuude, inflation or deflation, and why?
Participantcooperdog, thanks for the additional questions.
The financial planner’s job is to selling investments, so he wants to convince me to invest with him. He said he would send me some information. Yuma property values jumped a LOT in the last few years, so people buying now are late to the party. I don’t see how a 260 acre parcel 40 miles outside of Yuma will ever be worth more than it is today, regardless of the refinery. I haven’t heard of plans to put a new highway through the desert at that location. So I posted this stuff, hoping that you all would show me what I’m missing.
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