Norton on Real Estate: The N.H. economy, from a worldwide perspective
I flew down to Washington, D.C., to attend the fall Counselors of Real Estate conference. I look forward to these meetings, but like most people, I sign up months ahead and then as D-Day approaches I run around like the proverbial one-armed paper hanger, trying to position most of my current projects so that when I return nothing has completely disintegrated! With faxes, e-mails, cell phones and laptops it is easier to stay in the loop. The downside is that it is more difficult to disengage, clear your head and be open and fully attentive to the information, ideas and discussions being presented to you. Like everything else in the 21st century, even think-tank time is done at warp speed. Regardless, the fall CRE meeting was titled “Risk and Return” and topics included: • “Is There a Housing Bubble?” • “Economic Forecast: Investment Risk and Return in the Commercial Marketplace” • “Eminent Domain: Fallout from Kelo v. City of New London” • “Base Realignment and Closure Commission: Economic Disasters or Opportunities?” • The Aftermath: Obstacles and Opportunities in the Wake of Katrina (and Rita)” • Managing Property Risk: From Baghdad to Your Backyard” • “Wheels Turning: How the Cogs of the Broad Economy Mesh with the Cogs of the Property Markets” • “Real Estate Vanishing Value: The Gathering Energy Crisis” This is a lot of info to cram into one’s head in two days, even a head as astute as this writer’s! These sessions are very well thought out and professionally presented. The Q&A sessions that follow each session are sometimes more thought-provoking. I am a firm believer that in order to provide state-of-the-art real estate counseling and services in northern New England, one needs to travel to other markets, observe what is going on there (or not going on) and think about both the similarities and differences. This provides perspective. It is easier to stay holed up in New Hampshire, grinding away, than to disengage for a few days and take a crash course in realities all over the United States, Europe and the world. By talking one-on-one with pension fund advisers from the U.K., one can grasp how and why they are willing to fund real estate acquisitions in the U.S. for 4.2 percent fixed for 10 years. With average wages of 92 cents per hour for general labor costs in China versus $21 per hour here in the U.S., is there any doubt that outsourcing and offshoring will continue? There is over $100 billion of capital trying to get into the U.S. right now. Suddenly big-trophy properties are heating up again. One of the most interesting things I learned was that rising home prices have fostered creative mortgage products, aka exotic lending vehicles. The median 1,500-square-foot, two-bedroom home in San Diego is over $600,000 ($720,000 in San Francisco). Traditional 80 percent fixed-rate mortgages simply will not qualify enough buyers. Suddenly the interest-only loans become available. In Atlanta this summer 40 percent of the residential mortgages for properties over $275,000 were interest-only; 36 percent of all sales this summer were for second homes — 13 percent in resorts, lakes, mountains and 23 percent for “investment.” This cannot go on forever. In fact, there are signs of tiring: stretching credit; rising mortgages rates; affordability is climbing; rising inventories; lengthening days on the market and more speculation. Is there a housing bubble? Yes and no. First, we define a bubble after the fact as a 20 to 40 percent decline in prices, so most likely yes for northern Florida, Miami, Las Vegas, Phoenix, Houston, and maybe Dallas and San Francisco. Most other markets should have a soft landing. Keep in mind we have had 13 years of favorable residential interest rates. But 40 percent of U.S. job growth in recent years is tied to the housing sector. The slowing of housing will have huge impacts on the U.S. economy. Housing may equal 20 percent of the GDP. So the pundits say no housing bubble in New England. Let’s hope they are right. Bill Norton, president of Norton Asset Management, is a Counselor of Real Estate (CRE), a Fellow of the Royal Institution of Chartered Surveyors (FRICS) and a member of the board of The Initiative for a 20/20 Vision for Concord. He can be reached at email@example.com.