My daughter and I and Wee Jamie the Wonder Grandson had to make a flying visit out to California all last week. Family reasons – my mother asked to see the three of us. She is in her nineties, bedridden and failing; this was the first time that she had asked to see us. We knew it would be the last, so we dropped everything, packed Thing the Versa and hit the road on Memorial Day for the twenty-hour-long drive, rather dreading everything that we might encounter when we got there. Not just the personal – but dreading encounters with the progressively-inclined and everything else which has come about in the nearly half-century since I upped sticks and left California behind for the military and then retirement in Texas.
Real Estate
Back to Google’s (Alleged) Beginnings…
Most people would not like to travel the way I travel. They want a specific route itinerary and planned places to visit.
For me, it is the spontaneity of the journey that I like. Last November I decided to drive from California to Minneapolis to attend Thanksgiving with my small family. And it was the unplanned stops along the way, a few way off course, that made the trip. I wrote about that trip here.
I have found a travel companion, and because of her background as a cruise director for the Royal Viking Line (and the first female cruise director), she is on board with my travel plans made at the last minute.
Inger once told me that she and her charge of passengers were in the middle of India, and the scheduled plane that was to take them to the Taj Mahal would not come. Now that is a challenge making arrangements “on the fly†for 20 people who are depending on you to get them to their destination in a timely manner. So she is used to travel’s unexpected detours.
House
As my daughter has taken up a new career (one which she is thoroughly enjoying, now that she has a successful sale under her belt and another three or four potentially serious and committed buyers on the horizon in the coming new year) I have had, perforce, to take an interest in the market for houses, in this, a moderately prosperous Texas city. Well, moderately prosperous, in spite of all the (explicative deleted) that the current economy and the Biden administration can throw at us. By all evidence that my daughter has noted locally, (mostly in price reductions for a number of listings) the property bubble has well and truly burst, or is now in a mode of slow deflation. Conventional wisdom among realtors who have been in it for years, is that prices for houses are on a seven-year-long boom and bust cycle. We’re about to head into the ‘bust’ downslope. Anyone who does have the wherewithal – the bulging pocketbook to buy outright or a high-enough credit rating qualifying for a loan at favorable rates to buy a house in the next couple of years will have their pick of properties, at least in this part of Texas.
What Will be the Fate of Brick & Mortar Retail?
The traditional retail industry, and the real-estate operations that provide space for it, are not, for the most part, doing too well these days. Â Billions of dollars that would once–not long ago–have been purchased in a local physical space are now purchased online and shipped from a warehouse that may be hundreds or thousands of miles away. Â Many services, too, that would formerly have been obtained in a local location are now obtained online…travel agencies, for example, have been largely supplanted by online services.
So, here’s a question to think about: Â What kinds of businesses are likely to continue to require local presence, and perhaps even to increase in their local presence needs?
And what kind of businesses are currently major users of local space, but are likely to need a lot less in the future?
An example in the first category would surely be restaurants/bars.
An example in the second category would be, IMO, branch banks.
Your thoughts?
West Coast Real Estate Starts to Turn
When I moved to the West coast I noted that prices were generally high relative to incomes. It is well documented elsewhere that San Francisco area housing prices are very high and Seattle has been skyrocketing as well. In Portland, housing isn’t as costly as Seattle or San Francisco but is very high relative to the local job market, particularly within the city limits and in the nicer areas. A condo in “the Pearl” in Portland (a local high rise market) is 2-3 times what I’d pay for a comparable unit in my former River North area in Chicago.
From an economic perspective, the income tax changes passed in late 2017, particularly the virtual elimination of the State and Local Tax deduction (SALT) for high earner households, along with continuing reductions in the mortgage interest deduction, should have had an immediate, negative impact on house prices in high tax states such as Oregon and California. I didn’t see these effects, but changes in the housing market take a long time to appear, because many transactions are already under way and sellers will hang on in the market rather than taking a perceived “hit” to the value that they expect to receive.
It looks like the market, in Portland at least, has crested and is (likely) to proceed in a downward direction. From an article in Bloomberg titled “The US Housing Market Looks Headed for Its Worst Slowdown in Years“
Dustin Miller, an agent with Windermere Realty Trust in Portland, said he’s trying to manage sellers’ expectations, something he hasn’t had to do since the end of the last housing boom. One customer, a baby boomer moving to a new home across the state, expected to have buyers fighting over her house. She got one bid, below her asking price. “Buyers want to shop and take some time, as opposed to having to rush and throw offers in,†Miller said. “It’s the market correcting itself. At some point, you hit a peak of momentum, and then things level off.â€
The real estate agent refers to this as moving from a ‘peak’ to ‘leveling off’ and we will see if this moves to a prolonged rout, like we had back in 2008-9. It will also be interesting to see if real estate in high tax states doesn’t bounce back as fast as real estate in states with lower tax rates, but we won’t be able to see the net effect of this for many years (and it is but one variable among a sea of variables).
I have a semi-sad theory about this – I don’t think folks understand the impact of the changes in tax laws until they file their taxes. Whether due to complexity (it is hard to model just a couple of variables in a tax program unless you know what you are doing) or a lack of financial acumen, I believe that after 2018 taxes are filed in the middle of 2019 you will start to see more of a “wealth effect” as home owners start to realize the potentially large impact of the changes to the SALT deduction.
As I look out my window in Portland I hope that they complete the high rise buildings that they are working on, and don’t break ground on new ones. We used to look at partially completed buildings for many years in Chicago after the 2008-9 crisis, until they finally completed them up to 5 years later.
Cross posted at LITGM