Economics & Finance

Valuing Your “Stuff”… Near Zero

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One trend in housing is the ever-increasing size of the average American house. A drive through any city or suburb will show that new houses are growing larger, right up to the lot lines, and buyers perceive total square feet to be an important amenity. If you took the typical suburban family and put them in the house that they originally grew up in they’d generally shudder – only one bathroom for all those people, sharing a bedroom, and hardly any closets! Closets are viewed as a key amenity, with the ability to store racks and racks of shoes and clothes for all seasons is a virtual requirement.

In parallel with this is the growth in off site storage. When I was growing up it seemed that few people I knew had off site storage, but it seems much more prevalent today. Storage for furniture, hobbies, collectibles and everything else that people can’t bear to throw out.

While houses are getting larger and in particular storage elements & off-site storage is a growth industry, a different trend is going the OTHER way. Deflation, or chronic price reduction, is occurring with most of the “stuff” that people are storing.

Here is one example – my new “blog” camera with a small footprint (it is pretty slim although the lends does pop out when you turn it on) was only $212 and it has 7 megapixels and a bunch of cool features, like when you tilt the camera 90 degrees the photos switch from landscape to portrait in “view” mode. This camera blows the doors off previous digital cameras that I paid over 600 dollars for just a few years ago.

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How to Lose a Shirt You Don’t Own

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One reason the effect of the US subprime loan crisis has spread so far and so quickly is that financial institutions have many ways of participating in the debt market other than issuing or buying debt instruments. Most of the financial news I have read omits explanations of how it happens, other than generic references to “derivatives.” Here are some of the other ways to have a loss without touching a mortgage.

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Real Estate Purchasing… and Wishful Thinking

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Like much of the USA, Chicago and in particular my neighborhood (River North) has had an immense construction boom in housing over the last decade or so. Condos have sprung up everywhere, and some buildings that initially started out as high-end apartments converted over to condominiums.

Not only has there been an increase in the number of units, the turnover in units once purchased by the buyer is quick. If our building is any guide, perhaps 25% of the units are resold on the secondary market every year. We are a medium sized building, which I consider anywhere between 75 – 150 units, and not a weekend goes by without a couple of Realtors in the lobby and a few open houses. The Chicago Tribune has a decent real estate section and you can select a given building (by defining a unique address) & see the turnover across a period of time, along with the gain (or loss) in pricing on units that have been purchased more than once in that time period.

The boom seems to be coming to an end. There is a lot nearby that was going to have a 19 story condo building; now there is a sign on the lot saying that a ground level lease is available. Some other buildings that were proposed seem to be moving quite slowly, as well.

I would broadly segregate the condo real estate market into the following groups: 1) developers that haven’t started yet 2) developers for which construction is substantially committed and units are being sold 3) units available for resale from owners who own / occupy the unit.

This advertisement is from a developer in category #2 – the building is up, many of the units have been sold, and now the developer is trying to clear out the rest of the inventory. This building in particular (I can see it outside my window, picture below) was an apartment building that converted over to condos; the process is pretty far underway (I think that they have sold most of the units) and the developer apparently is pretty committed to unload the rest of the units. In the fine print of the ad you can see the straightforward comment:

“We’ve lowered our prices to give you the kind of deal that you’ve been waiting for. If you think you can do better, tell us. We’ll see what we can do.”

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State Liquor Control Taxes

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On Saturday night, I was doing what I usually do, which is head over to the giant and amazingly well-stocked BINNY’S liquor store right by my condominium in Chicago (as documented in this “action” post) and roam the aisles a bit like a kid in a candy store before settling on some type of purchase. To my surprise, Binny’s was completely packed, with people who had shopping carts filled to the brim with every type of wine, beer and liquor. When I finally got up to the cashier (sadly enough, they recognize me and even let me in if I happen to be down there when the store is about to close) I asked what was going on and they said a tour bus pulled up out front from out of state and everyone was stocking up on liquor. The cashier said that this happens all the time. I asked the person behind me in line and she said that they were from Michigan and that she takes the tour every year around the holidays. I asked if this was legal and she kind of chuckled and that was that.
Sure enough, when I walked past the “Binny’s Booze Bus” the side doors facing the sidewalk under the seats were open and the spaces where the luggage was supposed to go were full of liquor of every variety, efficiently packaged by the case. (As an aside, I am switching back to cameras and kind of giving up on my Flip Video… because my posts were too boring w/out photos and the video software was too time consuming to mess with).

The first thought that crossed through my head was “I can’t believe that any taxes for anything are better in Chicago than anywhere else (other than our flat state income tax rate)” since we have the highest sales tax rate of any big city in the nation, and I figured we taxed liquor to death, too. But this bus full of booze-seeking Michigan residents offered tangible proof that the situation existed, so I decided to do some research.

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Income Mobility

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WSJ notes a government study that finds news as remarkable as that college-age boys are attracted to college-age girls.   The inevitability of one arises from human nature, the other from the nature of an open market place. The obvious may be acknowledged by Lou Dobbs and John Edwards, but such an admission would interfere with provoking sufficient envy to ensure their own income – and power – mobility.