I write this “opinion/editorial” article as a local business owner with ties to many different information sources, all of which are not quantified and all of which are considered private. I won’t mention names, but I will mention the real effects. There is something wrong, and I can only say we haven’t seen the worst of it yet. I trust (hope, desperately!) that I am incorrect in my conclusions. However, I also am a student of history. I know this: People don’t learn too well from their own mistakes.
Spring Break 2013: a time when college kids and parents hit the road in-between the semesters, shedding books for who-knows-what kinds of oddities, travelling, and shopping sprees.
Alas, “Spring Break:” We hardly knew ye! It did not occur, per retailers nationwide, per the tourism industry in Northern Arizona (home to the Grand Canyon), per auto retailers in California, and elsewhere.
Business is off by as much as 50% by some un-reported measures in the private sector here in the Flagstaff business community, and this is well documented in my mind as I witness the evolution of something odd. A local banking manager says “they’re buying houses and deferring spending on anything else.”
I then hear a National Public Radio discourse during the week of May 26, 2013, that claims the flippers are back in California. House flipping: buy a house cheap, hire an army of inexpensive labor, and invest whatever is reasonable to make it look good. Pick a good neighborhood, a distressed property, and bingo, you may double (or better) your money.
I hear it is a seller’s market.
But…I also hear that the shortage of real-estate is owed to an overabundance of “underwater” property: homes worth less than what is owed, and lenders really don’t want to take that short sale financial hit (sell for less than amount owed, lender writes-off difference rather than go through the high cost and inevitable losses of foreclosure).
The “Wall Street CheatSheet” states that 27.5% of all homeowners remain in an “underwater” state. That’s down from 31.1% the prior year. However positive they may sound, these statistics are NOT comforting, as home values are based on current sales values, which are increasing for reasons not well-understood (by me, anyway). This is a case of the blind leading the blind, as I see it (rather than see that a house is over-valued, we fear it will go up even more in cost, so we buy now. Rather should we not procrastinate and see what ultimately will happen?).
As I remember the inevitable real-estate bubble burst that began in 2006, I recoil when I see the value of homes appreciating rapidly. I wonder: can it happen again? The answer resounds: “those who cannot remember the past are condemned to repeat it.” (a quote attributed to George Santayana, circa 1905, The Life of Reason).
Another symptom rises in my mind. Students leave their four-year-college encumbered with debt unthinkable in my own youth of the 1970’s and 1980’s. A young fellow I know graduated with $100,000 in debt for a college degree? Wow! There is about $864 billion in college debt accumulated now, and what happens when an over-leveraged population of young adults find that there are no jobs and that they cannot repay?
It’s like 2006, except worse. This time, the housing bubble that reforms as I speak might just pop like a nuclear bomb, setting-off a hydrogen bomb of student debt.
This is not unthinkable. Consider this: was 2006 foreseeable? Of course it was. I spent over eleven years at a now-defunct home lender, the biggest one possible, the one too big to fail. It failed, and it remains an albatross around the neck of the poor bank that bought it. (Perhaps you can guess who’s who here?)
I saw the bubble first form in a small suburb of Los Angeles, California, known as Palmdale/Lancaster, in the 1980’s. A series of military base closures cause the inflated home prices there to fall precipitously. People turned-in their keys. I saw the same effect in Alaska in that same decade (the 1980’s), as oil prices bottomed and the roughnecks lost jobs. Keys arrived in the mail like crazy.
The year: 1997. I see undocumented loans on properties which double in price roughly every two to three years. I see people commuting long distances on cheap gasoline to their palace in some far-away place like the “Inland Empire” of California. Then, oil prices and fuel prices jump. Everyone sells to get closer to the job. But there’s a problem: nobody sells because suddenly, there’s a glut of real-estate, it’s over-valued, and “pop goes the weasel.”
It was easy to see things coming for this industry member. I got out early. Not everyone listened to me. They regretted it.
Now, I’m saying this again, and like the Apollo 13 astronauts once observed, “[…We have a problem…]”
I don’t know what to say or do about all this odd economic chatter I see, and I don’t fully understand what will precipitate the next bubble burst (which I have now likened to a thermonuclear bomb). It seems that dangerous, that overwhelming, and that scary on a destructive scale.
Please don’t even get me started on the national debt, which is like a swarm of thermonuclear bombs all set to detonate.
You don’t have to believe me. Go and ask, seek and find some off-the-wall poll answers from your local business owner friends. I think you’ll agree: businesses are hurting, especially in the retail areas. This is a harbinger of a problem, and, like always, it is fanned by “fear and greed” (and perhaps just a bit of naivety?).
I really hope I’m wrong about all these “unscientific measures,” but too many people agree with me. Good Luck, America. For what it’s worth, we are likely all going to need it!